The Relationship Between Economic Growth And Foreign Aid In Ethiopia: Time Series Analysis

Abstract

Ethiopia is a least developed country and it is mostly dependent on foreign aid from the international communities to fulfill its developmental expenditures. Ethiopia has been the recipient of substantial foreign funding from several global financial institutions during the past ten decades. The research has tried to investigate imperially, the contribution of official development assistance in filling the resource gaps of Ethiopia. For this purpose, quantitative data has been gathered, organized and analyzed from the year 1990 to 2022 G.C. The findings validate a persistent correlation between foreign aid, economic growth and gross domestic investment. The findings demonstrate that foreign aid exerts a substantial and beneficial influence on Ethiopia's economic growth. Conversely, domestic investment and employment levels have a favorable but negligible impact on economic growth in long-term. The important policy implication of the study proposes that more effort has to be made to improve the impact of interest payment on external debt, mainly because of existence of poor institutional arrangement, which accumulate unpaid sums that shall create burden to the future repayment schedule and doubt on potential donors. The government has to ensure, a close monitoring and consistent management strategies, which is used to avoid mismanagement problems specially, for timely repayment strategy