On the nexus of inflation, unemployment, and economic growth in Ethiopia

Abstract

We investigate into nexus of inflation, unemployment, and economic growth for the least-developed, transition-undertaking, economy of Ethiopia using the yearly frequency of several macroeconomic series from 1980 to 2020. Before we control for the potential impulse of other series, we run three independent regressions each on VAR and ECM models in only three of the key macro-fundamentals taken here: inflation, unemployment, and economic growth, to apprehend their intrinsic relationships. Indeed, our VAR estimates are consistent with those of ECM, guaranteeing dynamically unique links for the three major series. We proceeded to run three augmented-ARDL regressions, where one cointegrating equation was suggested each for inflation and growth models, and none for the unemployment model. Our long-run results reveal the trivial effect of either inflation or unemployment rates on the economic growth of Ethiopia; signifying, perhaps, exclusiveness in the country's growth scenery. But, their transitory roles are anticipated. In turn, the long-term relationship between inflation and economic growth is not non-trivial, with inflation associated inversely with unemployment. Apart from some recent moves on renovating Ethiopia's agriculture, it would be of substantial influence to promptly sustain income growth and calm-down price spikes by reassuring, at best, labor-intensive venture and incentivizing productivity in the rest sector.