Abstract
Budget deficit is the major problem of most developing countries. As depend on the theory economic growth and budget deficit relationship has no clear conclusion. The conducted studies shows in different developing countries the relation between budget deficit and economic growth is vary as depend on their economy. Regarding to this, the researcher is focus to see the relation between budget deficit and economic growth in Ethiopia from the period of 1974/75 to 2019/2020. Under this study the researcher used Autoregressive distributed lag and vector autoregressive model to see the long run, short run relationship and causality of budget deficit and economic growth. The study pass all tests like Augmented Dickey-Fuller, Phillips- test statistic, diagnostic test of residual for ARDL model ,“F” and “t” bound test. The depicted result told that there is long run positive relationship between budget deficit and economic growth, which is consistent from Keynesians School. Moreover negative relationship between external debt and budget deficit is recorded. The impact of inflation rate and tax revenue is insignificant in both long run and short run. In short run both external debt and economic growth has negative relationship which assert the Freidman and neo-classical paradigm. Depend on the study result the researcher forward some recommendation for the government. The government should spend on productive economic activity to generate enough revenue and rise up economic growth. Moreover, other interested researcher can improve this study by including other macroeconomic variables and looking the study with longitudinal investigation. Keywords: - ARDL model, Budget Deficit, Ethiopia, Economic Growth DOI: 10.7176/IAGS/82-01 Publication date: May 31 st 2020
Highlights
Proper budget plan has been a powerful role to make countries influential in most aspects, because strategies that have the prospective to make a change to people’s living standard have linkage from the budget of a given country
When we consider budget deficit, at the same time policy makers are eager to see the responsibility of budget deficit on economic growth which recorded in each developing economies and it is ringing in every interested mind
As the study result shows there is no long run relationship between economic growth and budget deficit for Malaysia economy, the study proved the existence of Ricardian equivalence hypothesis in this country
Summary
Proper budget plan has been a powerful role to make countries influential in most aspects, because strategies that have the prospective to make a change to people’s living standard have linkage from the budget of a given country. Having the advantage of budget deficit and the long period experience of budget deficit in Ethiopia; the researcher is eager to see the relationship between budget deficit and economic growth. It is very crucial looking the connection, which exist between those two variables. As the study result shows there is no long run relationship between economic growth and budget deficit for Malaysia economy, the study proved the existence of Ricardian equivalence hypothesis in this country. From the above listed empirical studies the researcher concludes that some of the researchers found that the economic growth, external debt and budget deficit has positive relationship. Additional to see the relationship of those listed variables researchers used different models like VAR, VECM, ECM and ARDL model
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
