Journal of
Development and Agricultural Economics

  • Abbreviation: J. Dev. Agric. Econ.
  • Language: English
  • ISSN: 2006-9774
  • DOI: 10.5897/JDAE
  • Start Year: 2009
  • Published Articles: 551

Article in Press

External Debt as a control of Ethiopian economic progress: A Time Series Analysis from 1991/92-2018/19

Mengistu Negussie, Malefiya Ebabu Tekea

  •  Received: 28 September 2021
  •  Accepted: 29 November 2021
The aim of this paper is to analyze the contribution of Public foreign Debt for Ethiopian economic growth from 1991/92 to 2018/19 using ARDL model. The result indicates that debt service payment and debt service export earnings ratio has adverse effect though it’s trivial in Ethiopian economic growth while the total public foreign debt stock to real GDP has a negative and substantial consequence on real GDP. ADF test revealed that only variable (GDP) is stationary at levels or I(0) but at the first difference all variable are stationary. This implies that ADF values of all variable at first difference are greater than the critical value I(1) and we reject the null hypothesis (there is a unit root). The trace and max-Eigen statistics value in johansen co-integration test result also shows that there are three co-integrated equation at 5%, which implies there is long run relationship among the variable. Additionally, the result of Granger causality test shows that the ratio of total stock of external debt to gross domestic product (TEDTGDP) and gross domestic product (GDP) has causal relationship. The model result confirms that the ratio of external debt to gross domestic product has inverse relationship with GDP in the short run and long run time period at 1%and 5%, while debt service, total foreign debt stock and debt service export ratio has insignificant effect on GDP. The study concludes that huge external debt slowdown economic progress of the country and existence of debt over hang problem in Ethiopian economy 1991/92-2018.

Keywords: Economic growth, Error correction model, External debt