The Causality and Dynamic Relationship between GDP Growth, Export, and Import: Empirical Evidence from Ethiopia

Abstract

This empirical study investigated the co-integration and the dynamic relationships between GDP growth, export and imports of Ethiopia using time series data from 1981-2017. The stationarity test of variables are done by using Augmented Dickey-Fuller and the Phillips-Perron tests. Choosing the optimum lag of the model are done by using the Akaike Information Criterion. The ARDL and ECM estimation techniques are applied to determine the short-run and long-run relationships among the variables including the Granger causality techniques. For the co-integration test, we found long-run relationships among the variables. This empirical study result found: 1. Positive and significant long-run effects of export for the GDP growth in Ethiopia. 2. A bidirectional long-run relationships between export and imports. 3. A positive and significant short-run relationship between import and GDP growth. 4. There is a correct sign coefficients of the ECM model result with a moderate speed of adjustment to correct the discrepancy between the short run and long-run dynamics. 5. A unidirectional Granger causality from export and imports to GDP growths. 6. A bidirectional Granger causality relationship between export and imports. This study finding implied that the long-run growth of GDP in Ethiopia can be enhanced by encouraging exports and imports.