Ethiopian Economic Features and Changing Persistence: A Time Series Analysis

Tofik Mussa Reshid

doi:10.11648/j.ajtas.20200903.12

Abstract

Ethiopia was one of the countries least developed and it is among the countries in the bottom in the rank of GDP’s that UN lists. However, nowadays Ethiopia is one of the fastest growing economies in the world. In Ethiopia much effort has been made to build the national economy. Ethiopia has made significant strides towards becoming a middle income country by 2025. This paper provides an overview of Box-Jenkins model for temporal data. In this research we used time series analysis of some of Ethiopian economic features such as GDP, GDP growth rate and inflation rate. Box-Jenkins model was used to analyze 35-year data (1981-2015). GDP, GDP growth rate, and inflation rate were variables under the study to describe persistence change and to forecast future behaviors. We tried to find best model for description and predictive model for these series using different model selection tools. We compared different orders of Autoregressive Integrated Moving Average (ARIMA) using AIC, BIC and MSE to fit the observed data. The best from compared was ARIMA (2, 2, 2) for GDP, ARIMA (2, 1, 2) for GDP growth rate and ARIMA (1, 1, 1) for inflation rate. Since forecasting is important for many purposes, we forecast the series from best ARIMA models. Five year forecast showing that GDP is an increasing trend and the average forecast of GDP rates is showing an average of 10.028.

Highlights

The Autoregressive Integrated Moving Average (ARIMA) model is used to forecast the future behavior of these series
The GDP is in line of increasing cubic trend and the GDP rate fluctuates and in the last decades it comes to increase, whereas the inflation rate fluctuates throughout the observation periods
We try to find the “best” ARIMA model using information criteria and Box-Jung’s appropriate lag test and we found good predictive models

Summary

Introduction

The major aim of countries is to build strong economy. In Ethiopia much effort has been made to build the national economy. The Ethiopian economy is undergoing rapid transformation and has become the fastest growing non-oil exporting economy in the world, posting an average of 11% growth annually over the last eight years [1]. Ethiopia was one of the countries least developed. The human development index (HDI) calculated yearly by UN ranks Ethiopia 169th from 177 countries in 2005 and its GDP percapita was of $ US 160. During last decades it has become one of the fastest growing economies in the world with an average GDP growth rate 10% per annum [21]. In contrary to the previous three or four decades starting from 1990s the economy is in its fast growth trend [22]

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Conclusion