Inflation and Economic Growth in Ethiopia

Mamo Esayas Ambe

doi:10.7176/hrl/48-03

Abstract

This study is focused on inflation of import goods and assesses and identifies the major determinants of import goods inflation in Ethiopia. To achieve this objective the study used time series data (from 1974/75 to 2012/13) to analyze the variables in its multiple linear regression model using ordinary least square (OLS) estimation technique. The model includes; broad money supply, real effective exchange rate & world oil price as independent variables and import price inflation as dependent variable. Findings of the study suggested that import price inflation in Ethiopia is significantly determined by broad money supply, real effective exchange rate and world oil price. Therefore based on this result revaluation of currency and finding another sources of energy and cooperating with other countries in stabilizing world oil price is recommended for government of Ethiopia. Keywords: inflation , economic growth , multiple linear regression , currency ,M2 DOI : 10.7176/HRL/48-03

Highlights

IntroductionFindings of the study suggested that import price inflation in Ethiopia is significantly determined by broad money supply, real effective exchange rate and world oil price
This study is focused on inflation of import goods and assesses and identifies the major determinants of import goods inflation in Ethiopia
The study used descriptive statistics like graph and table to analyze the trend of import goods inflation and time series econometrics using ordinary list square method to analyze the determinants of import price inflation

Summary

Introduction

Findings of the study suggested that import price inflation in Ethiopia is significantly determined by broad money supply, real effective exchange rate and world oil price. Based on this result revaluation of currency and finding another sources of energy and cooperating with other countries in stabilizing world oil price is recommended for government of Ethiopia. Prior to the Second World War inflation tended to occur during and immediately after wars, when government financed the war, or during periods when gold discovers of the significant kind had been made Such as German hyperinflation of 1923, weak government has attempted to by their way out economics crises by printing vast sum of money (Richard, 1981), this inflation had two important characteristics , It occurred in response to some particular events, such as wars, gold discover or unmanageable economic crises. Studying the linkage between price developments and various macro-economic variables, enable us to understand the causes of the current inflation in Ethiopia. (Alemayehu G., 2011)

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