Dynamics of Growth, Unemployment, and Poverty in Ethiopia: Evidence From Time Sires Analysis (ARDL Approach)

Abstract

The study was examined the dynamics of economic growth, unemployment, and poverty in Ethiopia by using annual time series data from 1980 to 2018. The Auto-Regressive Distribution Lag (ARDL) bounds test approach is applied to determine the existence of the long-run linkage among study variables. The result indicates the existence of a long-run causal relationship among economic growth, unemployment, poverty and investment (gross fixed capital as an intermittent variable) in Ethiopia. Hence, the error correction term is adjusted annually by 0.522% towards the long-run equilibrium. Besides, all the estimated coefficients of all variables have satisfied the hypothesized signs of trickle-down economic growth path preposition at a 1% statistical significance level. Furthermore, the Granger causality test result confirmed that there is a unidirectional causality running from economic growth to poverty, unemployment to economic growth, and investment to economic growth. There is bidirectional causality exists between running from investment to poverty and poverty to investment. But, there is no Granger causality between poverty (real household consumption expenditure per capita) and unemployment in Ethiopia. Thus, the study concludes that Ethiopian economic growth was following a trickle-down growth path that targeting the poorer people to trap in poverty. Finally, the study recommends to the policymakers and government to insightful more ways on economic growth trickle down to solve salient traits i.e. unemployment and poverty in the Ethiopian economy.