Abstract:
Ethiopia’s manufacturing industry is at the onset of development though there are recent upsurges
in the number of firms. The study examines growth of industrial manufacturing and its
contribution to GDP of Ethiopia used ARDL model estimation technique and time series data from
period 2000 to 2021. Investigation of the long-standing correlation that exists between economic
growth and manufacturing output for competitive Ethiopian economies in the period of the
phenomenon of deindustrialization has been rarely investigated in the literature. Therefore, based
of Ethiopia’s future policies it is essential to study the role of manufacturing in economic growth
for the future in the Ethiopia’s economic region. In short run, ECM regression shows that except
the gross capital formation all variables are statistically significant. The sources of the data were
from Ministry of Finance and Economic Cooperation (MoFEC), National Bank of Ethiopia (NBE),
World Bank (WB) and WDI (world development indicator). This study employed Autoregressive
Distributed Lag (ARDL) approach to co-integration or bound procedure for a long run
relationship, irrespective of whether the underlying variables are I(0), I(1) or a combination of
both. From the ECM we can understood that GVA and GE are positively affecting economic
growth whereas REER and OPE are negatively affecting the economic growth of Ethiopia. In long
run, trade openness and gross value added of industries are the major variables determining
economic growth of Ethiopia and statistically significant. Trade openness and gross value added
of industries have positive impact on economic growth. Conversely, real effective exchange rate,
government expenditure and gross capital formation have insignificant impact on economic
growth of Ethiopia in the long run. Therefore, from the study result, we can conclude that growth
of industrial manufacturing does contribute to Ethiopian economic growth both in the short run
and long run. Thus as policy implication, the Ethiopian government should create conducive
environment for both domestic and foreign investors that are mainly focused on producing of new
product that in turn boosts economic growth of Ethiopia.
