IMPACT OF GOVERNMENT SECTORAL EXPENDITURE ON ECONOMIC GROWTH IN ETHIOPIA

Abstract

This study investigates the impact of government sectoral expenditure on economic growth in Ethiopia over the period from 1992 to 2017, with a particular focus on sectoral expenditures on education, health, agriculture, growth capital formation (infrastructure) and defense, by using Vector Autoregressive Model and Vector Error Correction Model to investigate the marginal effect of expenditure on each sector on economic growth. The study finds that in the long run expenditure on health and expenditure on education have positive coefficient and are statically significant at 1% significant level. But inflation rate has negative relationship with Real GDP Growth rate of Ethiopia and statistically significant at 1 % significant level. From a policy point of view, the results suggest that, to bring sustainable real GDP Growth rate, Ethiopia should develop and introduce policies that increase the level of expenditure on education and expenditure on health.