Long Run Effects of Export Instability on Economic Growth of Ethiopia: Cointegration Analysis

Abstract

This study investigated the hypotheses that whether export instability adversely affects the economic growth of Ethiopia in the long run using the data over the period of 1981-2017. For this purpose the paper employed econometric and different statistical techniques to determine export instability index and the long run relationships of cointegrating variables. The Augmented Dickey Fuller (ADF) and Johansen Cointegration tests are also used to test stationarity for all variables and cointegration respectively. The ADF test result revealed  that all variables are non-stationary  at  levels  but  stationary  at  their  first difference  and  integrated  of  order  I(1). The Johansen Cointegration test result also suggested that there exists a unique long-run relationship among the variables entered in to the model. The investigation demonstrated that export instability has deleterious effect on economic growth. The study also found that export, human capital and consumption have significantly positive effects on economic growth.  However, Gross capital formation has reflected puzzling effect on economic growth. This result may be due to the fact that export instability is causing the whole macroeconomic instability. The policy implication is that the government has to follow an export oriented measures whereby such fluctuations can be smoothed out, like diversification of export portfolio, if the country is to secure rapid and sustained economic growth in the long run.

Keywords: Export instability, Economic Growth, Cointegration, Investment

DOI: 10.7176/JESD/10-9-06

Publication date:May 31^st 2019