Abstract:
This study investigates the impact of remittances on economic growth in Ethiopia from 1990
to 2022 using an Autoregressive Distributed Lag (ARDL) model. It examines both long-run
and short-run relationships between real GDP and key economic variables, including
remittances, human capital, foreign direct investment, government expenditure, and trade
openness.
The results reveal that remittances, human capital, and government expenditure have positive
and significant effects on long-run economic growth, while foreign direct investment shows a
negative impact. In the short run, remittances and human capital maintain positive effects,
but government expenditure exhibits a negative influence. The error correction model
demonstrates a rapid adjustment to equilibrium following shocks. Additionally, Granger
causality tests establish a unidirectional causal relationship from remittances to economic
growth.
The findings underscore the critical role of remittances in fostering Ethiopia's economic
development. The study concludes with policy recommendations emphasizing the facilitation
of remittance inflows, enhanced investment in human capital, and improved optimization of
government expenditure to maximize their growth-enhancing potential while addressing
short-ter.
