| Abstract: | The main objective of this study was to investigate the determinants of
economic growth in Ethiopia during the period of 1981-2015. Co-integration
and Error Correction Model were applied in order to investigate the long-run
and short run relationship between the dependent variable (real GDP) and its
determinants. The finding of the test shows that there was a stable long run
relationship between real GDP, Physical capital, human capital, labor force
and export. The empirical results reveal that both physical and human capital
were found to have positive impact on economic growth both in long run and
short run analysis while term of trade and foreign aid affect economic growth
negatively and statically insignificant at 1 percent. However, the study found
out that export of goods and service had statistically insignificant impact on
economic growth with positive sign in the long run, but labor force had
statistically significant impact on economic growth. This study has also an
important policy implication. The findings of this study imply that economic
growth can be improved significantly when the physical capital increases.
Hence, policy makers and/or the government should strive to increase capital
formation (gross capital accumulation) which is believed as a back bone of
growth and has allocate adequate finance for human capital, which will help
to work on quality of education. |
