Economic Growth Determinants in Ethiopia: A Literature Survey

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ECONOMIC GROWTH DETERMINANTS IN ETHIOPIA: A LITERATURE SURVEY
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ECONOMIC GROWTH DETERMINANTS IN

ETHIOPIA: A LITERATURE SURVEY
1
Amare Berhanu Altaseb, 2Kamaljit Singh
Department of Economics
Punjabi University
Patiala, India
Abstract: The paper performs a qualitative narrative appraisal of the existing empirical literature on the key macroeconomic
determinants of economic growth in Ethiopia. The studies have explored the prominent factors of economic growth using various
econometric approaches. Their research investigations revealed that the key determinants that significantly affected the economic
growth of Ethiopia, as per their order of significance, include physical capital, exogenous factors (foreign aid, external debt and
foreign direct investment), demographics, trade, human capital, fiscal policy, monetary policy and financial factors. However, while
these studies reveal the key macroeconomic determinants of economic growth in Ethiopia, the extent of their impacts on economic
growth varies from study to study. Some determinants in particular such as physical capital, exogenous factors and demographics,
among others, are showed mixed and inconclusive results. Thus, the study recommends farther systematic review of empirical
literatures using meta-regression analysis that gives some useful insights into the quantum effects of economic growth determinants,
especially those that revealed mixed results.
Keywords: Economic Growth; Macroeconomic Determinants; Econometric Models; Time Series
INTRODUCTION
Substantial economic growth is the main macro-economic objective of all countries and one of the most important agenda in world
political economy. Increase of gross domestic product is a basic requisite to economic development. As indicated by Haller, economic
growth is the process of raising the sizes of national economies, the macro-economic indications, especially the GDP per capita, in an
increasing but not necessarily linear direction, with positive effects on the economic-social sector. The economic achievements result
in the advance of the quality of life, adequate conditions of treatment, improvement of the academic system and an improved
distribution of incomes (Haller, 2012).
So many theoretical and empirical researches interest on economic growth have increased since 1950’s. Usually the centra issue in
Economics science is long run economic growth. Identification of the determinants that enhance or hamper economic growth has also
been one of the central issue amongst theoretical and empirical growth researches and have reached on little consensus and it is still
inconclusive issue. Hence it is difficult to draw a single conclusion regarding the macroeconomic determinates of economic growth
of countries. What is central in one country may not be that much important in other country. Even with in the same country because
of the nature of data, time and methodology used for analysis, the outcome might be different. Research institutions, international
organizations, academic institutions, governments and communities have strong interest in knowing the determinants of economic
growth of a given country.
Various studies have been conducted in Ethiopia to identify the sources of Ethiopian Economic growth. However there is a lack of
conclusive evidence on sources of economic growth. The main objective of this systematic review is, therefore, to review sample
previous studies in Ethiopian case and draw a justifiable conclusion. This paper is expected to provide a clue regarding determinants
in country’s economic growth for the government, policy makers, other institutions working to promote Economic growth and
researchers hence improving living standards of citizens. Different bodies have keen interest in recent evidence as the base for
international, national and local decision-making process and policy development. Therefore this study tried to show agreeable
determinants to reach at certain conclusion.
1
Amare Berhanu Altaseb (Ph.D. Research Scholar), e-mail:amare37@gmail.com, Punjabi University, Patiala
2
Dr. Kamaljit Singh (Professor of Economics)Punjabi University,Patiala
IJRAR1904951 International Journal of Research and Analytical Reviews (IJRAR) www.ijrar.org 326
STUDY APPROACH
The method adopted was detailed literature reviews approach of research outputs in the area. Qualitative survey approach was
employed to analyze the studies outputs to identify major macroeconomic determinants of Ethiopian economic growth.
The study employed basic searching techniques to search research papers from internet. More than 45 papers were indentified
which were same area and Ethiopian context. However only 17 were selected based on their relevancy. During the systematic review
two stages screening process was applied: first title and abstract screening was conducted and then screening of full-texts was
undertaken. The study assumed that many factors might be the cause for economic growth of the country. For this study, however, the
main determinants of economic growth include physical capital, exogenous factors (foreign aid, external debt and foreign direct
investment), demographics, trade, human capital, fiscal policy, monetary policy and financial factors.
MACROECONOMIC PERFORMANCE OVERVIEW
Ethiopia, Africa's oldest independent country, is located in the Horn of Africa and a peninsula in northeast Africa. The country has
an area size of roughly 1,126,829 square kilometer, making it the 10th largest country in the continent and 2nd in its population with
an estimate of 108.6 million people (UN, 2018).
Ethiopia’s economy has experienced strong, broad-based growth. The last decade witnessed multiple challenges to the Ethiopian
economy: there was severe drought caused by El Nino, political instability, and a slowdown in the global commodity prices as well as
in the global economy. Despite these challenges, GDP growth averaging around 10% over the last decade to a regional average of
5.4%. In 2016/17 real GDP increased by 10.9% from the 8.0% registered in 2015/16 (EEA, 2017), (AEIB, 2018).
In 2017 Gross Domestic Product (GDP) and the per capita GDP in Ethiopia was worth 80, 561,496,134 and 768 USD respectively
(WB, 2018).
90
80.56
80 73
70 64.46
60 55.61
47.65
50 43.31
40
32.44 31.95
29.93
30 27.07
20
10
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Fig1: Ethiopian GDP in Billion USD
Source: Tradingeconomics.com: World Bank
Higher economic performance brought with it positive contribution in poverty reduction in both urban and rural areas. Growth has
been driven by public investments in agriculture and infrastructure as well as expansion of the services and manufacturing sectors.
Agriculture is the dominant sector in Ethiopian economy. Much of the agricultural production is traditional by nature, but still
provides a significant portion of cash crop exports. This economic sector makes up 46.6% of the GDP and provides opportunities for
other economic activities such as marketing and processing (EEA, 2017).
In 2015/16 fiscal year the industrial and services sectors expanded at a rapid rate of 18.7% and 10.3% respectively and
contributed significantly to GDP growth. Value added in the industry sector grew by 20.6 percent. A major deceleration is observed in
the agriculture sector as value added in the sector expanded only at a rate of 2.3 percent. This contrasts with the 6.6 percent growth
rate of value added in the sector during the GTP1 period (Ibid).
The service sector has still held the lead accounting for 47.3 percent of the GDP. This is followed by the agriculture sector with a
static share of 36.7 percent. The decline in the share of the agriculture from 38.4 percent in 2013/14 to 36.4 percent in 2015/16 is
largely attributed to the weak performance of the sector due to the drought rather than the normal structural change. These two
sectors account for about 84 percent of the GDP. As the same time, the share of the industrial sector in the economy is limited at 16.7
percent of the GDP despite the rapid growth in the sector. This shows the historical low base of the sector for the longer period (Ibid).
The second phase of the growth and transformation plan (GTPII), that was launched in 2015/16 and will run to 2019/20,
anticipated an annual growth rate of 11.2 in the GDP, and growth rates in value added of 8.6 percent in the agricultural sector, 10.2
per cent in the service sector, and 21.4 percent in the industrial sector. The growth rate in the industrial sector showed a one-
percentage-point margin above the targeted growth while the service and agriculture sectors showed a less-than-target performance in
terms of growth.
The fast growth in the industry sector is consistent with the objectives of GTP II in that the sector, in particular the manufacturing
sub-sector, should accelerate to lead the overall economy, ensuring durable structural change. GTP II targeted an improvement in the
number and productivity of manufacturing industries with strong support from the government.
This second Growth and transformation plan will continue to enhance the growth of physical infrastructure through public
investment projects, and the transformation of Ethiopia into a manufacturing hub. It is anticipated to strengthen domestic private
sector development and FDI, and support medium term growth, which is expected to remain around 8%.
According to African Export-Import Bank (AEIB,2018), inflation has been a tendency of being higher in Ethiopia and reached
13.6% in December 2017 up from 6.7% in December 2016 partly on account of the devaluation of the Birr in October 2017 and poor
weather conditions. The devaluation of the currency together with continued credit expansion is likely to prolong causing inflation in
the short to medium term.
Regarding exchange rate, Ethiopia’s currency is the “Birr” and the country’s exchange rate undertakes under a controlled floating
regime. Implementation of gradual depreciation policy of the Birr has been started since October 2017. The exchange rate dollar to
birr now stands at Birr27.43: US$1, compared to the exchange rate of Birr23.40: US$1, reflecting a devaluation of 15%. This was to
enhance price competitiveness, attract FDI, and boost exports to narrow trade deficits. Despite this move, the exerting pressure by
IMF continues for further devaluation could further weaken the Birr in the short to medium term (Ibid).
Government’s fiscal balance has shown progressive change in the 2016/17 fiscal year on account of a 9.6 % rise in revenue side
by side with a 5.5% grow in government expenditure. The strong incremental change in government revenue during this period was
because of robust tax revenue, contributing 77.4% to government income. These achievements served as a blueprint for the
government fiscal policy in the short and medium term and anticipated to maintain boosting tax revenue in 2017/18 fiscal year to
modernize and expand infrastructure in priority areas such as health and education. These infrastructures are expected which will
contribute a lot in economic growth of the country. However, by regional standards revenue as a share of GDP remains low (Ibid).
When we see the total trade of Ethiopia, it is the 23rd largest export economy in Africa and the 91st largest export economy in
the world in 2017. Ethiopia was resulting in a trade deficit of US$11.84 billion i.e. the gap between exported US$2.86 billion and
imported US$14.7 billion. Country’s top imports include capital goods such as electrical goods and vehicles, machinery, packaged
medications, palm oil, fertilizers and refined petroleum. During 2017 the percentage share of each export category of total exports
were Coffee, tea, spices 33.6%; Vegetables 18.8%; Oil seeds 15.6%; Live trees, plants, cut flowers 7.8; Gems, precious metals 4.4%;
Meat 3.4%; Raw hides, skins, leather 2.6%; Live animals 2.2%; Electrical machinery, equipment 2% and Footwear 1.6% (Ibid).
As of December 2017 Ethiopia’s reserve status has been attained US$3.19 billion. However, the current reserve position can
address only about two months of imports. Because government projects get priority in the allotment of available foreign currency,
the private sector’s access to foreign exchange is limiting (Ibid).
Country’s Current and Capital Account Balances deficit increased considerably over the last five years from -3.2 percent of GDP
(2012) to -11 percent of GDP (2016) (Ibid). Business and economic potential of the country and the establishment of Special
Industrial Parks and Economic Zones, and also development of infrastructures will contribute a lot in stimulating both private and
public investments. These efforts are anticipated to help in improving of the capital account as well as the current account. These all
depicted that economic growth is one of the most important issues in country’s development agenda.
ECONOMIC GROWTH DETERMINANTS
As summarized in Annex 1, we examine seventeen (17) empirical growth studies that focused their analysis on identifying the key
macroeconomic determinants of economic growth in Ethiopia. The studies include Becker, Palme and Sintayoh (2006), Fentahun
(2011), Ibrahim (2011), Hailegiorgis (2012), Abis (2013), Ashagrie (2015), Senait (2014), Haile (2015), Khalid and Kenji (2016),
Zewdu and Minyahil (2017), Biruk (2017), Mulugeta (2017), Mohanty (2017), Dagnachew and Kalluraya (2017), Admasu (2017),
Rao and Leta (2017) and Dechassa, Butte and Ayele (2017).
Becker, Palme and Sintayoh (2006) investigated the contribution of aid to enhance Ethiopian economic growth covering the
period 1980-2002. Using quantitative approach, and employing cointegration method of analysis, the study results showed that aid
which is given in the form of grant was positively and significantly associated with long-run economic growth while loan has failed
to repeat the same and was negatively and significantly associated with economic growth. The study results also revealed that human
capital has not yet contributed to growth of GDP in the long run as impact but the positive relationship given in the short run. The
study, therefore, concluded that the tying that are mainly imposed on loan by donors hinder the effectiveness of the loan and that led
to have unexpected result.
Fentahun (2011) examined the impact of real effective exchange rate on the Ethiopian economy using annual time series data for
the period 1970-2009. Using cointegration and vector error correction analysis, the study results revealed that real effective exchange
rate and government investment expenditure were positively and significantly associated with economic growth, while real interest
rate was significantly but negatively. He therefore concluded that the country is on the right truck to go for an economic growth as
the real effective exchange rate and public expenditure are the most important tools of economic growth in the hand of the
government.
Ibrahim (2011) investigated the impact of road network on economic growth in Ethiopia. Using an econometric analysis based
on time series data extending from 1971-2009, showed total road network was positively and significantly associated with economic
growth in Ethiopia. When the network is divide into asphalt and gravel roads, asphalt road has a positive impact, but gravel roads
were not significantly affect GDP growth of a country. The study concluded that to have a far-reaching impact on economic growth
asphalt road has a great role than gravel road.
Hailegiorgis (2012), using the annual data for the period 1974 to 2009 and by applying Granger causality test examined the causal
relationship between export and economic growth of Ethiopia. The study found that there is evidence of unidirectional causality
between export and economic growth for the country. The study concluded that export growth causes economic growth in Ethiopia.
Abis (2013) using quarterly based data for the period 1992q1 to 2010q4 investigated the relationship between inflation and
economic growth in Ethiopia, by employing Engle-granger and Johansen co-integration. The study result showed that, there is a
positive long-run relationship between inflation and economic growth. Moreover, based on the conditional least square technique, the
estimated threshold model suggests 10% as the optimal level of inflation that facilitates growth. The study concluded, therefore, that
an inflation level higher or lower than the threshold level of inflation affects the economic growth negatively.
In another study, Ashagrie (2015) empirically assessed the relationship between inflation and economic growth in Ethiopia using
dataset from 1971 to 2013. Based on the Threshold Auto Regressive Mode it is found out that inflation was positively and
significantly associated with economic growth in the long run and negatively and significantly in the short run. However the empirical
result does not support the existence of threshold effect between the two variables in the period.
Senait (2014), using the annual data for the period 1960/61 to 2011/12 investigated the contribution of export earnings to
economic growth of Ethiopia, by employing co-integration, vector error correction estimation and Granger causality test. The results
showed that export, gross capital formation and labor force were positively and significantly affected economic growth in the long run
but not in the short run; while import was negatively and significantly affected economic growth both in the long and short run. On
the other hand, the result of Granger causality test showed that a long-run bidirectional causality that goes from the cumulative effect
of export and import to economic growth; from growth and import to export; and from economic growth and export to import. The
study concluded, therefore, that the study result provided support for the adoption of both export-led growth and growth-led export
growth strategies in Ethiopia.
Covering the period 1974-2011, Haile (2015) investigated the impact of foreign aid on economic growth of Ethiopia using
Autoregressive Distributed Lag (ARDL) model. The positive coefficient of aid policy index interaction showed that aid has positively
contributed to economic growth in Ethiopia if it interacted with stable macroeconomic policy environment: however, it was found to
have negative influence on economic growth without this term in.
In another study, Khalid and Kenji (2016) investigated the Source of Economic Growth in Ethiopia by applying Vector Error
Correction Model. The study result was based on time series data that covered the period 1981-2014. The empirical result revealed
that GDP growth has positive and significant long-run relationship with all independent variables (trade openness, human capital, and
physical investment). On the other hand the result showed that trade openness and employment were positively and significantly
associated with economic growth while grow fixed capital formation and labor productivity growth have no impact on GDP growth
in the short run.
Zewdu and Minyahil (2017) empirically assessed economic growth-trade liberalization nexus in Ethiopia covering the period
1974/75-2014/15, by adopting the Johnson’s approach for cointegration. The study results revealed the existence of positive and
significant impact of trade liberalization on economic growth. However, its short run growth impact was estimated to be
insignificant.
Biruk (2017) investigated the empirical relationship between Infrastructure Development and Economic Growth in Ethiopia
during the period 1974/75-2014/15, spanning 40 years. Using an ARDL; bounds tests, and ECM, the study results revealed that, the
long run dynamics using cointegration procedure allows specifying the dynamic adjustment among the cointegrated variables. The
bounds test confirmed that, there is no evidence for the existence of long run relationship; i.e., all the variables moving together in the
long run. However, estimation using OLS provides economic growth has a positive relationship with economic infrastructure stock,
education expenditure, and labor force , while health expenditure and private investment have not significant relationship with
economic growth. The study concluded that infrastructures development is crucial for economic growth in Ethiopia over the periods
under investigation.
Mulugeta (2017) investigated the impact of government expenditure on economic growth in Ethiopia covering the period 1981-
2014. Based on an empirical analysis using Johansen cointegration approach, the study result showed that real government spending
on human capital formation, real private investment and real openness had a significant and positive association with the long-run
growth of real per capita income while, real government consumption had a significant but negative association with long-run
economic growth. The study also found that the coefficient on real government physical investment was not statistically significant in
the long run. On the other hand the result revealed that in the short run, all components of government expenditure were not
significantly associated with growth of real per capita income.
Mohanty (2017) examined the relationship between external debt and economic growth in Ethiopia using a time series
econometrics approach and covering the period 1981-2014. Using RGDP growth rate as the dependent variable, the results revealed
that stock of external debt, external debt service, gross domestic investment GDP ratio and human capital had positive and
statistically significant long run relationship with Ethiopian economic growth; while labor force and trade openness had insignificant
relationship with the economic growth.
In a different study, Dagnachew and Kalluraya (2017) investigated the impact of external public debt on Ethiopian economic
growth during the period 1970-2016. The study result showed that, external debt was found not to significantly support economic
growth in Ethiopia. The study concluded, therefore, that external debt needs adequate management as it impede on the level of
economic growth in Ethiopia.
Admasu (2017), using ARDL approach, investigated the nexus of foreign capital inflows and economic growth in Ethiopia over
the period of 1981–2014. Using the real GDP per capita as the dependent variable, the results revealed that the flow of foreign aid has
a negative effect on economic growth both in long run and short run. The result also showed that there was negative long run
relationship between the flow of foreign direct investment and the country’s economic growth. From its findings the study concluded
that the negative relation was mainly because the existence of poor institutional arrangement and the funds were not always connected
to the productive sectors.
Rao and Leta (2017) employed Johansen multivariate analysis and the vector error correction model to investigate macroeconomic
determinants of economic growth in Ethiopia by using annual time series data ranging from 1980-2014. The study results showed that
social welfare expenditure has positive and significant impact on the economic growth of Ethiopia while gross domestic capital
formation has negative significant impact on the economic growth of the country.
Finally, Dechassa, Butte and Ayele (2017) investigated the effect of export and import on real economic growth of Ethiopia using
Vector Autoregressive Model (VAM). Applying time series data for the study covering the period 1982-2015 and the result showed
that there is no long run relationship of export and import with real GDP. Vector autoregressive analysis of the study also suggested
that the lagged variables of both export and import have significant contributions in predicting the economic growth of the country.
Impulse response estimates revealed that there is negative impact due to shocks from export on real economic growth but later
converges to zero. The study finding proved that the shocks from import produce continuous responses in the long run.
DISCUSSION
The findings of overall study results showed that physical capital is largely positive and significantly associated with economic
growth of Ethiopia (Fentahun, 2011; Ibrahim, 2011; Ahmed and Kenji, 2016; Biruk, 2017; Mohanty, 2017; Admasu, 2017; Mulugeta,
2017). On the other hand, result of Rao and Leta (2017) showed that in Ethiopia investment can be negatively and significantly
associated with growth.
In terms of human capital development, the empirical literature reviewed in this study shows that human capital development was
positively and significantly associated with economic growth (Ahmed and Kenji 2016; Biruk 2017; Mulugeta 2017; Mohanty
2017).
The relationship between trades related variables and economic growth is mixed. The proxy variables that have been investigated
include real exchange rates, trade openness, exports and imports. Most empirical results revealed that real exchange rates , trade
openness, exports and imports are positively and significantly associated with economic growth (Ahmed and Kenji 2016; Mulugeta
2017; Zewdu and Minyahil 2017; Fentahun 2011; Senait 2014). On the other hand, result of Dechassa, Butte and Ayele (2017)
concluded that Import and export have no significant effect on economic growth.
Demographic factors studied in the empirical growth literature include population and growth of labor force. The empirical
literature revealed mixed results, with population and labor force either positively or negatively associated with economic growth.
Four out of six empirical literatures found population and labor force to be positively and significantly associated with growth
(Ahmed and Kenji 2016; Biruk 2017; Senait 2014; Admasu 2017). Rao and Leta (2017) have found a negative and significant
relationship between population and economic growth. Mohanty (2017) showed that they have no significant relationship in the long
run.
Exogenous factors that were commonly investigated in the empirical literature include foreign aid, external debt and foreign direct
investment. The empirical literature revealed mixed results, with foreign aid and external debt and foreign direct investment either
positively or negatively associated with economic growth. Dechassa, Butte and Ayele (2017), foreign aid; Mohanty (2017), external
debt; Zewdu and Minyahil (2017), foreign direct investment to be positively and significantly associated with economic growth. On
the other hand Haile (2015), foreign aid; Becker, Palme and Fissha (2006), external debt; Admasu (2017), foreign direct investment;
found to be negatively and significantly associated with economic growth. Haile (2015) investigation included the positive
coefficient of aid policy index interaction. The study showed that aid has positively contributed to economic growth in Ethiopia if it
interacted with stable macroeconomic policy environment.
Monetary economics variables investigated in the empirical growth studies include inflation and budget deficit. The results
revealed that inflation is positively and significantly associated with economic growth (Abis 2013 and Ashagrie 2015). Abis (2013)
showed that based on the conditional least square technique, the estimated threshold model suggests 10% as the optimal level of
inflation that facilitates growth. Rao and Leta (2017) found an increase in the budget deficit (BD) of the country has an impact of
reducing the real gross domestic product of the country as expected even though not statistically significant.
Among the financial indicator variables, real interest rate association with economic growth was investigated by Fentahun (2011).
The result of the study showed that real interest rate was found to be negatively and significantly associated with economic growth.
Fiscal policy variables used in the empirical growth literature cited in this study include government consumption and social
welfare expenditures. The empirical results revealed that real government consumption expenditure was negatively and significantly
associated with economic growth (Mulugeta 2017), while government social expenditure was associated positively and significantly
with country’s economic growth (Rao and Leta 2017).
CONCLUSION
Two stage literatures screening process was applied: title and abstract screening and full-text screening. Seventeen (17) studies
were found relevant.
In this study, previous empirical studies were qualitatively reviewed to identify the key macroeconomic determinants of Ethiopian
economic growth. The objective of this paper was to assess whether there is consensus amongst researchers in terms of the
macroeconomic factors that basically either drive or hinder economic growth of the country. The paper fundamentally differs from
other similar studies by its coverage and approach.
A reviewing of the empirical studies conducted in this paper showed that the key determinants that significantly affected the
economic growth of Ethiopia, as per their order of significance, include physical capital, exogenous factors (foreign aid, external debt
and foreign direct investment), demographics, trade, human capital, fiscal policy, monetary policy and financial factors.
However, intensities of such key macroeconomic determinants, which were revealed by the studies, were varying from research to
research. Hence we may find mix and inconclusive results on some sources of economic growth variables like physical capital,
exogenous and demographics factors.
Thus, the study recommends farther systematic review of empirical literatures using meta-regression analysis that gives some useful
insights into the quantum effects of economic growth determinants, especially those that revealed mixed results.
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Annex 1: Studies’ results of Ethiopia’s economic growth macroeconomic determinants

Determinants with a Significant Impact on Growth
Sample Methodology/
Title Author(s) Data source Determina
Period Technique Used Significance and R/P
nts
DOES AID CONTRIBUTE TO Becker et al., 2004 cointegration analysis in
ENHANCE GROWTH IN The Engel-Granger + in the long run
AID
ETHIOPIA? A THEORETICAL sense (Engel and 0 in the short run
AND EMPIRICAL APPROACH Granger, 1987).
World Bank 1980-2002 -In the long run
LOAN
-in the short run
HC 0 in the long run
+in the short run
ECONOMIC GROWTH NEXUS Zewdu et al., 2017 Johnson’s Multivariate + in the long run
OPEN
TRADE LIBERALIZATION IN Cointegration Analysis 0 in the short run.
MoFED
ETHIOPIA: EVIDENCE FROM 1974/75- RER + in the long run
NBE
THE JOHNSON’S 2014/15 0 in the short run.
EEA
MULTIVARIATE + in the long run
COINTEGRATION ANALYSIS FDI
0 in the short run.
THE IMPACT OF REAL FENTAHUN , cointegration and vector + in long run.
WB RER
EFFECTIVE EXCHANGE RATE 2011 error correction analysis - in the short-run
IMF
ON THE ECONOMIC GROWTH + in long run
MoFED 1970-2009 GOVEX
OF ETHIOPIA
NBE
-in long run.)
EEA RINT
+ in the short-run
INFRASTRUCTURE Birhanu B.A., 2017 WB DEXEC + The bounds test confirms
DEVELOPMENT AND MoFED EDEXE + there is no evidence for
ECONOMIC GROWTH IN NBE EEPCo 1974/75- ARDL; bounds tests, HE 0 the existence of long run
ETHIOPIA ERA 2014/15 and ECM. PI 0 relationship; i.e., all the
EAl variables moving together
MoME LF + in the long run.
THE CONTRIBUTION OF Senait G., 2014 Penn World LF + In the long run
co-integration ,vector
EXPORT EARNINGS TO Table v8 EXP + in the long run
1960/61- error correction
ECONOMIC GROWTH OF MoFED
2011/12 estimation and Granger
ETHIOPIA: A TREND ANALYSIS EEA IMP - In the short run
causality test
NBE
THE EFFECT OF EXPORT-LED Hailegiorgis B.A.,
IMF Granger (1969)
GROWTH STRATEGY ON THE 2012 1974 - 2009. EXP +
WB causality test
ETHIOPIAN ECONOMY
ROAD SECTOR DEVELOPMENT Worku I., 2011 ERA ASPR +
augmented Solow
AND ECONOMIC ADI 1971-2009 0
growth model GRR
GROWTH IN ETHIOPIA IMF

Sample Methodology/
nts
MOFED
CSA
+ in short run
OPEN
SOURCE OF ECONOMIC Khalid Y. A. et al, +in the long run (bi directional)
GROWTH IN ETHIOPIA: AN 2016 WB + in short run
MoFED LF
APPLICATION OF VECTOR +in the long run (but not the reverse)
ERROR CORRECTION MODEL ILO Vector Error Correction
1981- 2014. 0 in short run
UNESCO Model FKF
+in the long run (but not the reverse)
CSA
0 in short run
LF
+in the long run (but not the reverse)
THE IMPACT OF FOREIGN AID Haile G., 2015 EEA -In the long run
Autoregressive AID
ON ECONOMIC GROWTH MoFED -In the short run
Distributed Lag (ARDL)
NBE
VECM (Vector Error
CSA 1974-2011
Correction Model )was AID+POL
IMF +
employed to estimate ICY
PWT
the short run dynamics
WB
THE IMPACT OF GOVERNMENT Mulugeta D. M., + in the long run
HC
EXPENDITURE ON ECONOMIC 2017 0 in the short run
GROWTH IN ETHIOPIA, -in the long run
MoFED RGVC
0 in the short run
NBE JOHANSEN
1970/71 - 0 in the long run
EEA COINTEGRATION GVI
2010/11 0 in the short run
EEPRI APPROACH
+ in the long run
WB PI
0 in the short run
+ in the long run
OPEN
0 in the short run
INFLATION - GROWTH NEXUS Ashagrie D. 2015
CSA
IN ETHIOPIA: EVIDENCE FROM Threshold Auto INFLATI + in the long run
WB 1971- 2013
THRESHOLD AUTO Regressive Mode ON - in the short run
NMA
REGRESSIVE MODEL1
THE RELATIONSHIP BETWEEN ABIS, 2013 1992Q1- + in the long run (10% as the optimal
Engle-Granger and
INFLATION AND ECONOMIC 2010Q4 INFLATI level of inflation that facilitates
Johansen co-integration
GROWTH IN ETHIOPIA Quarterly ON growth
tests
base
EXTERNAL DEBT AND Mohanty,A.K. NBE ExD + in the long run
ECONOMIC GROWTH IN 2017 MoFED 0 in the short run
1981-2014 VECM
ETHIOPIA: A TIME SERIES WB 0 in the long run
LF
ECONOMETRICS APPROACH IMF - in the short run

Sample Methodology/
nts
PWT + in the long run
HC
0 in the short run
+ in the long run
GDI
+in the short run
+ in the long run
0 in the short run
0 in the long run
OPEN
0 in the short run
IMPACT OF EXTERNAL PUBLIC Dagnachew A. A, MoFED
DEBT ON ECONOMIC GROWTH et al, 2017 NBE
A STUDY WITH REFERENCE TO Granger Causality Test
CSA 0
ETHIOPIA 1970- 2016 and Co-integration ExD
EIA
Models
EEA
WB
THE NEXUS OF FOREIGN Admasu A., 2017 -in the long run
AID
CAPITAL INFLOWS AND -in the short run
ECONOMIC GROWTH IN + in the long run
LF
ETHIOPIA 0in the short run
0 in the long run
WB HC
0 in the short run
NBE 1981–2014 ARDL approach
-in the long run
UNCTAD FDI
0 in the short run
+ in the long run
GKF
+in the short run
0 in the long run
RI
0in the short run
MACROECONOMIC Rao, T.K and Leta, -in the long run
BD
DETERMINANTS OF ECONOMIC 2017 0in the short run
GROWTH IN ETHIOPIA 0 in the long run
CSA OPEN
0in the short run
NBE POP -in the long run
Johansen co-integration
MoFED -in the long run
technique and the GDKF
MoA 1980-2014 0in the short run
VECM (vector error
0 in the long run
MoE correction model) GAEx
0in the short run
IMF GIEx 0 in the long run
0in the short run
+ in the long run
GSWEx
0in the short run

Sample Methodology/
nts
VECTOR AUTOREGRESSIVE Obsi D.G., et al, IMP 0 in the long run

Vector autoregressive
MODELLING OF SOME 2017 -in the short run
NBE 1982 - 2015 (VAR) model/ Johansen
ECONOMIC GROWTH EXP 0 in the long run
co integration test
INDICATORS OF ETHIOPIA - in the short run
NB.
’+’ and ‘-’ signs described positive and negative relationship of variables with economic growth with significant level. Whereas ‘0’ describes insignificant relationships between independent variables and dependent one
(economic growth).
Abbreviation in the Table
Data Sources: WB=World Bank Development Indicators Data base, MoFED=The Ethiopian Ministry of Finance and Economic Development, ILO=International Labor Organization, UNESCO=United Nations Educational,
Scientific and Cultural Organization, and CSA=Central Statistical Agency of Ethiopia, PWT= Penn World Table, EEA= Ethiopian Economics Association, EIA=Ethiopian Investment Agency ,
UNCTAD= United Nations Conference on Trade and Development, NMA = National Metrological Agency
Variables: HC= Human Capital; RER= real exchange rate; FDI=foreign direct investment; GOVEX =Government expenditure; RINT = Real interest rate; EXEC= economic infrastructure stock; EDEXE = education
expenditure; HE= health expenditure; PI= private investment; LF= labor force/ employment; EXP= Export; IMP= import; ASPR= asphalt road; GRR= gravel road, FKF= fixed capital formation; AID=
official foreign aid; AID+POLICY= Foreign aid interacted with policy index; RGVC= real government consumption, GVI= real government physical investment; DS=Debt Service; ExD = External Debt ;
GDI= Gross Domestic Investment; OPEN= Trade openness, GKF=Gross capital formation; RI=Remittance inflow; BD= budget deficit; POP = population /labor force; GDKF= gross domestic capital
formation / physical capital; GAEx = government expenditure on agriculture; GIEx= government expenditure on Industrialization; GSWEx= Government social welfare expenditure
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ECONOMIC GROWTH DETERMINANTS IN ETHIOPIA: A LITERATURE SURVEY

Article in International Journal of Research · November 2018

Amare Berhanu Altaseb

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ECONOMIC GROWTH DETERMINANTS IN

Keywords: Economic Growth; Macroeconomic Determinants; Econometric Models; Time Series

Annex 1: Studies’ results of Ethiopia’s economic growth macroeconomic determinants

Determinants with a Significant Impact on Growth

Determinants with a Significant Impact on Growth

Determinants with a Significant Impact on Growth

VECTOR AUTOREGRESSIVE Obsi D.G., et al, IMP 0 in the long run

Abbreviation in the Table

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