THE IMPACT OF FOREIGN AID ON AGRICULTURAL GROWTH OF ETHIOPIA

Abstract

Majority of the poor in terms of share and number, live in rural areas where the main source of income is agriculture. The agriculture sector is at the heart of economies of least developed countries like Ethiopia with less productivity of this sector, supporting this sector via foreign aid may lead agricultural development to stimulate growth in many poor countries. This study have an objective of whether Foreign Aid has an impact on agricultural growth of Ethiopia or not, with time series data of ranging from 1985 up to 2014 using vector error correction model in order to know if they have a short run and long run relationship. All necessary time series tests that is stationary test, co-integration test; diagnostic test and model stability test are taken. The result of the study reveals that Foreign Aid has a positive and significant impact on agricultural growth of Ethiopia in the long run while there is no association in the short run. Therefore accepting Foreign aid with efficient utilization to public spending in general and sector wise for the sake of agricultural as well as economic growth it is very important.