DETERMINANTS OF ECONOMIC GROWTH IN ETHIOPIA

ABSTRACT This day’s determinants of economic growth have been attracting an increasing attention in both theoretical and empirical research. One of the reason is that a sustained economic growth is essential for a country's long-term development and stability. Ethiopia achieved rapid and stable economic growth, considered as a ‘miracle’ when compared to other Sub-Saharan African countries by average real GDP growth per annum which was estimated at 10.31% between 2003 and 2019. Yet despite frequent progress in economic growth, Ethiopia remains one of the poorest countries in the world and there is change in composition of gross domestic product sectorial share. Against this backdrop, this paper was intended to analyze the determinants of economic growth in Ethiopia through the application of the Autoregressive Distributive Lag (ARDL) model. The paper was used the secondary data obtained from National Bank of Ethiopia, World Bank and Ministry of Finance and Economic Development for the period covering from 1975 to 2019. Physical capital, Human capital, Trade Openness, external debt, inflation, and foreign Direct Investment were included as independent variables. The empirical finding shows that physical capital, human capital and foreign direct investment are found to have positive impact on Ethiopian economic growth during the study period and statistically significant in the long run and the same except foreign direct investment insignificancy in short run also. On other hand external debt has statistically significant negative impact in economic growth during the study period in both long run and short run. Trade openness and Inflation have statistically insignificant impact on economic growth with negative sign in both long run and short run. Therefore, Ethiopian government should have to increase saving mobilization, to allocate adequate finance which will help to work on quality of education and providing basic health services to the society, strengthen the existing strategies in export development and promoting investment particularly in the manufacturing sector for export and import substitution and allocating resources on selected productive investment areas, which used to return back the debt burden and together with basic infrastructure construction that facilities productive of other sector is decisive. 1