Abstract
Several studies argued that international remittances have often been contributed to a significant source of finance to upsurge domestic investment for developing countries. Against this backdrop, this current article analyses a causal interdependency between remittance, government expenditure, and economic growth in Ethiopia covering the period from 1982 to 2017 by applying Toda and Yamamoto and Granger causality tests. Moreover, the Johansen-Juselius and an Auto-regressive Distributed Lag (ARDL) bounds-test approach was utilized to test the long-run co-integration relationship among the variables. Our findings confirmed that the series of variables has been jointly co-integrated in the long-run. The tests of the causality divulge that there was feedback in the causality between the remittance and economic growth in Ethiopia. We found that a unidirectional Granger causality links running from remittance to economic growth, and also a unidirectional causality running from government expenditure to economic growth. These causality results further suggested that the growth hypothesis which was assumed that the remittance and government expenditure was the main driving factor of determinants for economic growth in Ethiopia over the study periods and consequently, economic growth also the function of remittance and government expenditure. Keywords: Remittances; Economic growth; Government Expenditure; Co-integration; Granger Causality; Ethiopia JEL classification: C22; F24; F43; O55 DOI: 10.7176/JESD/11-16-17 Publication date: August 31 st 2020
Highlights
Nowadays, one of the notable facts in the modern life is that majority of wealthy country people have experienced the remarkable standard of life estimated by a higher per-capita income at present than decades ago or a generation ago, or any time in the past (Brunow et al, 2015)
Concluding Remarks The causal associations between GDP growth, remittance, and government expenditure in Ethiopia were determined from 1982 -2017 using the Auto-regressive Distributed Lag (ARDL) and Granger-causality framework by considering export, rural population growth and inflation rate as an additional control variable to the remittance–economic growth nexus
We employed the Augmented Dickey Fuller (ADF), Phillips and Perron (PP), and ADF-GLS tests for the unit root properties of the variables undertaken on the study we found the mixture of integrated of the order of the variables I(1) and I(0)
Summary
One of the notable facts in the modern life is that majority of wealthy country people have experienced the remarkable standard of life estimated by a higher per-capita income at present than decades ago or a generation ago, or any time in the past (Brunow et al, 2015). Majority of these remittances were transmitted to developing countries that had grown substantially in the past decade to reached US$325 billion by 2010 (World Bank, 2011) and after successive two years decline, it rebounded to touched a recent record of US$485 billion in 2017, which was about 4.1 % increase all regions from the former year 2016 (The World Bank, 2018) These trends are mostly true in Africa both outflows of cross-country migrant population and incoming remittance money to the region, for instance by 2010 more than 31 million migrant workers live outside from the region and sending more than US$40 billion to their families and communities equated about 2.6 % of Africa’s real GDP (Bang et al, 2016). The data reported by Central Bank of Ethiopia shows that the figure substantially higher $661 million in the 2010(NBE, 2010) sharply rose to US$1,796 million in 2014, and reached the peak to over US$4.4 billion by 2017 about 45% increased to reached in 2017(NBE, 2018)
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