Exports, domestic demand and economic growth in Ethiopia: Granger causality analysis

摘要

Fundamental relationships between different macroeconomic variables may follow certaincommon theories but local preferences are also decisive in determining their behaviorsince, macro economy of every country is unique and they need to be treated afterconsidering their peculiarities. In this regard, looking into domestic demand-growth nexus andexport-growth nexus are, therefore, needed in order to understand the long -run economic stanceand to capture the short-run dynamics in the national economy as well as to find evidence aboutthe source of economic growth. However, the causal relationship between exports, domesticdemand and economic growth in Ethiopia has not received adequate attention. Therefore, theaim of this study is to find a causal relationship between export, domestic demand and economicgrowth in Ethiopia using time series data over the period 1960161-201011 I. This study uses twomeasures for domestic demand, namely household consumption and government consumption.Granger causality and Johansen co integration test are employed in the empirical analysis.Result of Johansen cointegration test indicates the existence of long run relationship among thevariables. The result of Granger causality test shows that there is a dynamic relationshipbetween export and economic growth and between domestic demand and economic growth.Export and domestic demand are important for economic growth as well as, economic growthhave an impact on export and domestic demand in Ethiopia. A successful and sustainedeconomic growth requires growth in both export and domestic demand. Nevertheless, a balanceemphasis should be to domestic demand to push the economy towards higher growth path.Key words: Domestic demand, Ethiopia, Exports, Granger causality.