Growth Of Industrial Manufacturing And Its Contribution To Gdp Of Ethiopia: Ardl Model

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.