The Link between Economic Growth, Exports and Imports in Ethiopia: A Vector Auto Regressive Analysis

Abstract

The relationship between exports, imports and economic growth of Ethiopia has been investigated in this paper for the period 1981-2018 by using annual data from World Bank. For the analysis, Vector Auto Regressive Model, Johansen co-integration analysis and the Granger-Causality tests were implemented. The outcome of the analysis reveals that there is no co-integration relation between exports, imports and economic growth in Ethiopia. Conversely, we found that there is a strong evidence of bidirectional causality between exports and economic growth and a unidirectional causality from export to import. There is also a causality running from import to exports at a 10% significance level that witnessed weak bidirectional causality between imports and exports. This shed light on the importance of giving more emphasis on export-led growth by Ethiopian policy decision makers. Keywords: Economic Growth, Exports, Imports, Co-integration, Vector Auto Regressive, Granger Causality, Ethiopia DOI: 10.7176/DCS/12-5-02 Publication date: May 31 st 2022