Effect of International Migrant Remittance on Economic Growth of Ethiopia: An Autoregressive Distributed Lag Approach

Abstract

The study was to examine the effect of international migrant remittance on economic growth inEthiop. The study was conducted to examine the dynamic relationship between gross domestic product(GDP ), migrant remittance (RMM), total inactive labor force /unemployment(LR), total number of population(POP) and inflation rate of goods and services(INF). To achieve the objectives of the study time series data from 1990 to 2022 was collected from official website of World Bank, UNCTAD stat and national bank of Ethiopia. Autoregressive Distributed Lag (ARDL) approach was employed in order to examine the dynamic relationship between the variables under considerations. Before considering the long run ARDL model, Akaike’s information criterion (AIC) was employed for lag length selection. In addition to that the stationarity level of each variable was checked and that all variables were stationary at first difference. From study, the trend of migrant remittance in Ethiopia indicated that the inflow of receipt remittance was increasing from time to time and contributing for economic growth. Also the study revealed that the economic growth trend in Ethiopia was moving upward while receipt remittance used for investment during the study period. The result of bound test of ARDL model indicated that there is long run relationship among gross domestic product(GDP ), migrant remittance , total inactive labor force , total number of population and inflation rate. . As indicated by the paper, the pair wise Granger causality test showed that there is unidirectional causality gross domestic product(GDP ), migrant remittance , total inactive labor force , total number of population and inflation rate on economic growth respectively. Based on the finding of the study, in order to raise economic growth interms of international migrant remittance the policy makers have to prepare and adopt policies that encourage 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. The Ethiopian government give recognizes on the importance of remittances from its migrants, for the development of the country and has taken several initiatives to optimize the effects of these financial flows and minimized informal channels .