Impact of Government Spending on Economic Growth in Ethiopia: Time Series Analysis

Abstract

expenditure on economic growth using time series data from 1970 to 2019 in
Ethiopia. To this end, unrestricted error correction model (UECM) and
single equation autoregressive distributed lag model (ARDL) was used to
identify short run and long run impact of government expenditure on
economic growth respectively. The estimation result envisaged that capital
expenditure has distorting effect in the short run, while it promotes growth in
the long run. The study also revealed that government recurrent expenditure
has positive effect in the short run, but has no positive effect and implication
on growth in the long run. Similarly, debt financed capital expenditure
crowd in economic growth in the short run even though it crowds out
economic growth in the longrun. Therefore, government should pay due
attention to development project management to enhance the effectiveness of
capital expenditure in achieving sustainable economic growth and closely
supervise the adverse effect of recurrent expenditure to maintain
macroeconomic stability.