Impact of International Remittance on Economic Growth of Ethiopia: An Autoregressive Distributive Lag Approach

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.