Effect Of Current Government Expenditure And Economic Growth In Ethiopia: An Empirical Analysis

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.