The causality analysis between export and economic growth in Ethiopia

Abstract

This study investigated the causal relationship between export and economic growth in Ethiopia using quarterly data on real GDP and real export for the period 1997/98- 2010/11 from national bank of Ethiopia. The study reviewed the trends of export and economic growth of Ethiopia during the current government. To test the relationship between export and economic growth, the researcher used bi-variate model without exogenous variable. The major proxy variables employed in this study are real GDP for economic growth and real export for export growth of goods and services. The long run relationship was assessed using Johansen co-integration technique and the error correction model was used to analyze the short run relationship and the speed of adjustment towards long run equilibrium. The Johansen co-integration procedure was applied and the results of the co-integration test proved the existence of a single co-integrated equation. The co-integration test confirmed the existence of long run relationship between export and economic growth in Ethiopia. The ECM regression result shows that there is no significant short run as well as long run causal relationship from export to economic growth. It also proved that there is a significant long run causal dynamism from economic growth to export growth, but the case in the short run is not significant at 5%. So, the ECM causality test result confirmed that there is only long run uni-directional causal relation from GDP to exports. To achieve economic growth of the country, the policy makers or the government should give high attention for the production of exportable as well as non-exportable products. Key Words: causal relationship, Johansen co-integration, ECM, export and economic growth.