Abstract:
This study is to examine the impacts of international remittance on economic growth in Ethiopia.
To this end Auto regressive Distributive Lag (ARDL) model was applied in econometric analysis
for the annual data primarily from NBE and MOFED between the periods 1992-2022 depending
on result of eviews 9 software. ARDL Bound testing approach incorporating Error correction
model is employed to estimate the long-run and short-run effect of remittance on economic growth
in Ethiopia during the study period. The result reveals that in the short-run remittance has
positive significant effect on economic growth. Thus, the result implies that in the short run huge
remittance inflow can adjust balance of payment and boost domestic investment which will have
also increase the economic growth of the country. Although it has been expected to be positive
impact in the long run, in the long run remittance shows significant negative effect on economic
growth during the study period, Remittances are considered an uninterrupted source of income,
which may increase voluntary unemployment, leading to decreased economic growth. Thus, it is
recommended for the government that should make policies to discourage this voluntary
unemployment also for policy makers to Employing policies aiming reducing cost of remittance to
increase the volume of remittance inflows and encourage or even subsidize Ethiopian banks to
open money transfer agents or branches in countries where there are large numbers of Ethiopian
migrants are living. One way developing countries try to increase inflows is to require mandatory
remittances by those working abroad. This can be implemented through proclamation, requiring
workers employed overseas to remit certain percent of their monthly salaries through national
banks. Proof of compliance with this order was required before the worker's annual passport
could be renewed.
