Determinants of Economic Growth in Ethiopia

Abstract

Economic growth around the world has not been equal for a long time. Some economies grow faster while others grow slower. What accounts for the fast or slow growth is a question worth asking. This study tried to identify the sources of long run economic growth in Ethiopia. Time series data covering the period 1981-2011 were employed for the dependent (national income) as well as independent variables. Explanatory variables including investment, human capital, foreign aid, rainfall, population and terms of trade were investigated. The findings show that growth in Ethiopia is positively affected by investment (physical capital), human capital, foreign aid and rainfall. Whereas, population growth and terms of trade (the latter is insignificant) have a negative effect on the growth of real GDP in Ethiopia. Therefore, the focus regarding the Ethiopian economy should revolve around increasing saving and investment, paying attention to the enhancement of human capital, minimizing the influence of weather on the economy, and finally checking the rapidly growing population. These measures will help achieve rapid economic growth in Ethiopia.