Agriculture Sector Growth and Inflation in Ethiopia: Evidence from Autoregressive Distributed Lag Model

Abstract

There is cross country difference about the relationship between economic growth and inflation. Although the issue is the most researched topic, limited studies were undertaken at sectoral level, such as the relationship between inflation and agriculture sector growth. Therefore, this study examines the effect of inflation on agriculture sector growth of Ethiopia from 1980-2018 using Autoregressive Distributed Lag model. Inflation has negative and significant long-run relation with agriculture sector growth suggesting that inflation is harmful to agriculture sector growth than stimulating it. Other regressors such as total factors productivity, arable land and labour force growth have positive and significant long-run relationship with agriculture growth. In the short run, the growth of agriculture sector has positive and significant relationship with its lagged value, capital, labour force, factors productivity, inflation and exchange rate. Thus, to increase the growth of agriculture sector, government should moderate inflation using prudent monetary and fiscal policy. It should also monitor the efficacy and suitability of agriculture investment to countries context. As land is fixed input, intensive agriculture and productivity enhancing technologies should be applied. Increasing labour skill through training could also increase agriculture output.