The Role of Remittance in Economic Growth in Ethiopia, Time series Analysis.

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.