Abstract:
The main Objective of this research is to empirically examine the effects of current
government expenditure on economic growth in Ethiopia, using the time-series data over the
period from 1978/79 to 2020/21. The study used VEC approach to determine the long-run
and short-run relationship between current expenditure and economic growth. Furthermore,
the study employ the Johansen co integration to determine the existence of long run
relationship between RGDP and independent variables. The findings indicate that the long
run the estimation of the current expenditure, gross capital formation, foreign reserve, trade
openness and total labor force have positive and statistically significant relationship with
real GDP. In addition, the short run, the empirical result reveals that there is only the one
year lagged value of RGDP is significantly affects the current growth real GDP. The short
run causality also shows that there is no causality running from either LNRGDP to
LNCUREXP or LNCUREXP to RGDP while the long run granger causality result shows that
there is unidirectional running from economic growth to current expenditure. , implies that it
not viable to depend on current expenditure alone to promote economic growth and the
government can implement stronger minimization of current expenditure policy without
compromising economic growth in the long run. This indicator of Ethiopia is still developing
country and expends high capital expenditure.
