The Role of Remittance on Economic Growth in Ethiopia: An ARDL Approach

Abstract

The study was carried out to find out the role of remittance on economic growth in Ethiopia from the period 1980 to 2016 along with other macroeconomic variables. Both descriptive statistics and time serious econometrics model were employed to analyze the data. The study employs an Autoregressive Distributed Lag (ARDL) model to co-integration in order to investigate the long and short-run relationship and Error correction model to estimate the short run effect.  The long-run empirical result using the bound test reveals that GDP has a long-run relationship with remittance, human capital, and openness to trade. The ARDL estimation suggested that remittance and human capital affects GDP in the long-run. However openness to trade didn’t show a significant association with GDP. The short-run Error correction estimation also shows that remittance and human capital had a short-run association with GDP. Therefore, in order to sustain long run growth apart from working on remittance and human capital the government should design appropriate policies that results in the efficient use of resources contributing to economic growth and proper management of variables that could contribute to national output.