The Effect Of Remittance On Economic Growth Of Ethiopia

Abstract

The main objective of this study was to analyze the impact of remittance on economic growth in Ethiopia along with other macroeconomic variables. In this study the empirical relationship between economic growth and remittances was investigated by using Johansen co-integration and error correction methods in Ethiopia during the period 1990-2020. Augmented Dickey Fuller tests were used to test for non-Stationary of the variables. It was found that except real GDP, all variables were integrated of order one. The study found that, remittance and gross capital formation had both positive and significant impact on economic growth both in long run and short run. Deposit interest rate had positive and significant impact on economic growth in long run while it had positive and insignificant impact on economic growth in short run. Additionally, in the long run government expenditure and exchange rate had negative and significant impact on economic growth. Therefore in order for remittance to continually contribute to Ethiopia’s economic growth it is strongly recommended for the government to expand opportunities for current and future workers by creating a well-developed and organized financial system that are more competitive in nature and responds to the needs of the migrants. Government should give greater consideration by continuing the current trend and encouraging the Diaspora community to support the country through using legal and formal financial institutions whenever sending their money; and also support any alternative means that encourage institutions, individuals who strive to bring foreign currency