Abstract
This study investigated the hypotheses that whether export instability adversely affects the economic growth of Ethiopia in the long run using the data over the period of 1981-2017. For this purpose the paper employed econometric and different statistical techniques to determine export instability index and the long run relationships of cointegrating variables. The Augmented Dickey Fuller (ADF) and Johansen Cointegration tests are also used to test stationarity for all variables and cointegration respectively. The ADF test result revealed that all variables are non-stationary at levels but stationary at their first difference and integrated of order I(1). The Johansen Cointegration test result also suggested that there exists a unique long-run relationship among the variables entered in to the model. The investigation demonstrated that export instability has deleterious effect on economic growth. The study also found that export, human capital and consumption have significantly positive effects on economic growth. However, Gross capital formation has reflected puzzling effect on economic growth. This result may be due to the fact that export instability is causing the whole macroeconomic instability. The policy implication is that the government has to follow an export oriented measures whereby such fluctuations can be smoothed out, like diversification of export portfolio, if the country is to secure rapid and sustained economic growth in the long run. Keywords : Export instability, Economic Growth, Cointegration, Investment DOI : 10.7176/JESD/10-9-06 Publication date :May 31 st 2019
Highlights
Ethiopia’s economy, like many other developing countries, is mainly characterized by a large saving-investment gap, government budget deficit and current account imbalance
A variable in adjustiment coefficient matrix is said to be adjusting to the equilibrium when it has significant t-ratio and have opposite sign to the corresponding cointegrating relation coefficients, when this is the case the cointegration relation is equilibrium correcting in the equation ΔH
The hypothesis that export instability affects the economic growth is analyzed in this study for the Etiopian economy by using Cointegration analysis for the period of 1981-2017
Summary
Ethiopia’s economy, like many other developing countries, is mainly characterized by a large saving-investment gap, government budget deficit and current account imbalance. Besides smallness of export volume, unstable export earnings may be considered as a gap generating factor in the economy. The detrimental effects of export instability may be transmitted to the economic growth through saving and investments by widening the gap and raising budget deficits. Unpredictable fluctuation in export proceeds will cause fluctuation in earning of export product producing firms. On the other hand revenue of the government from export in the form of taxes may be disturbed (Chaudhary and Qaisrani, 2002). This calls the government to raise funds from borrowing to finance the budget deficit; both investment and economic growth may be significantly affected
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