Investigate on the Determinants of Economic Growth in Ethiopia

Habtu Nibret

doi:10.7176/jesd/10-1-04

Abstract

The study examines the macroeconomics determinants of economic growth in Ethiopia measured by real gross domestic product (RGDP). We used time series data for a period of 27 years that is 1991 to 2017. Augmented Dickey-Fuller (ADF) test was used for the unit root test and the Autoregressive Distributed Lag under Bound test was also conducted to establish short and long run relationships between economic growth and its macroeconomics determinants. The result shows that there is co-integration, which establishes the existence of long run relationship among the variables. The results show that gross fixed capital formation, total labor force, total government expenditure and foreign direct investment are the main determinants of Ethiopia economic output in the long run where us total labor force and foreign direct investment are the main determinants of economic growth in Ethiopia in the short run. The study recommended that there is need for government to consciously develop the business environment by provision of necessary infrastructure, which will lower the cost of doing business in Ethiopia. There is also the need for the government to retain tight monetary and fiscal policies in order to fight inflation in the Ethiopian economy, since inflation have negative influence on investment and Ethiopia economic growth and finally, There is needs to put stringent policy in place to minimized strike in Ethiopia labor sector in order to enhance their performance to the nation economy. Keywords : Macroeconomics; Unit Root; Cointegration; Ethiopia; Real Gross Domestic Product. DOI : 10.7176/JESD/10-1-04

Highlights

Human beings have always sought ways to improve their lives and living standards
Using data for the period from 1971 to 2006 and employed FMOLS and Auto-Regressive Distributed Lag (ARDL) bounds testing for the long run relationship and error-correction model (ECM) for the short run dynamics, the findings suggest a positive relationship between efficient stock markets and economic growth, both in short run and long run while financial instability and inflation have negative effects
F-statistic value of each of the variables at first difference is greater than the McKinnon 5% critical values, while total Labor Force, inflationary rate and foreign direct investment are stationary at level because the Augmented Dickey-Fuller (ADF)

Summary

Introduction

Human beings have always sought ways to improve their lives and living standards. To this end, growth and development has become the primary goal of every nation. The aspiration for economic growth and development is the result of experiences seen in the form of sustained elevation in an entire society towards a better life. Economic growth increases the range of human choice i.e. Freedom. The average level of satisfaction increases with a country’s level of income, this is true up to a certain level (Todarro et al, 2009). Economic growth reduces scarcity and gives us more satisfaction (more goods and services). All societies try to achieve economic growth and development

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Results

Conclusion