Abstract

The objective of this research was to analyse the role of Ethiopia’s government expenditure in economic growth and the importance that ODA has played in financing government spending. The study employed both descriptive and econometric analyses. In the econometric analysis, Ram’s (1986) model is adopted to scrutinize the impact of different composition of public spending on economic growth. The study revealed that public spending on physical investment and human capital development have positive contributions on economic growth while spending on consumption affects growth negatively. Besides, as opposed to those who argue that ODA is detrimental to the growth of the recipient country, the study found a positive contribution in Ethiopia’s growth, particularly during the last eight years when the country achieved high growth rate. However, the country is highly dependent on aid and loan, which made it susceptible to changes in the flow of aid. There was also a prevalence of the problem of over-indebtedness as the export performance and the foreign exchange earning capacity of the country remained low.

Key words: Public spending, official development assistance (ODA), debt, economic growth, Ethiopia.