Sectoral Analysis of the Impact of Foreign Aid on Economic Growth in Ethiopia. The Case of Agriculture, Education and Health Sectors

Master's Thesis , 2014 , 71 Pages , Grade: First grade

Economics - Macro-economics, general

This study has examined sectoral analysis of the impact of foreign aid on aggregate and sectoral economic growth in Ethiopia over the period 1981 to 2012 using multivariate Vector auto regression analysis. All the necessary time series tests such as stationary test, co-integration test, weak exiguity test, vector error correction, and causality test in vector error correction model and the like are conducted. The empirical result from the growth equation shows that aid has a significant positive impact on educational sector GDP in the long run. On the other hand, foreign aid has positive but insignificant impact on real GDP, agriculture GDP, and health sector GDP of Ethiopia. Foreign aid is effective in enhancing growth at aggregate level of the economy in general and education sector of the economy of Ethiopia in particular. The test result of the study result reveals that there is a bi-directional causal relationship between educational GDP and educational foreign aid in Ethiopia. However, the agricultural and health sector does not show any bi-directional causality with their respective sector aid. This implies that all aid allocated for sectors is ineffective all in all in achieving its objectives of economic development. Therefore, aid recipient country like Ethiopia has to work how to enhance the domestic revenue raising capacity of the country which is at the heart of the mechanism to meet the capital required for the economy in times of short falls and ineffectiveness of external resources.

Inhaltsverzeichnis (Table of Contents)

• Acknowledgment
• Acronyms
• List of Table
• List of Figure
• Abstract
• CHAPTER ONE: INTRODUCTION
  • 1.1. Background
  • 1.2. Statement of the Problem
  • 1.3. Objective of the Study
    • 1.3.1. General Objectives
    • 1.3.2. Specific Objectives
  • 1.4. Research Questions
  • 1.5. Hypothesis to be tested
  • 1.6. Significance of the Study
  • 1.7. Scope and Limitation of the Study
    • 1.7.1. Scope of the Study
    • 1.7.2. Limitation of the Study
  • 1.8. Organization of the Paper
• CHAPTER TWO: METHODOLOGY OF THE STUDY
  • 2.1. Data Types and Sources
  • 2.2. Description of Variables
  • 2.3. Model Specification
  • 2.4. Econometric Estimation Techniques
    • 2.4.1. Testing for Unit Root
    • 2.4.2. Test for Cointegration
    • 2.4.3 Vector Error Correction Model
    • 2.4.4 Causality Test in Vector Error Correction Model
• CHAPTER TREE: RESULT AND DISCUSSION
  • 3.1. Descriptive Analysis of Macroeconomic Performance in Ethiopia
    • 3.1.1. Analysis of Aggregate Economic Growth in Ethiopia
    • 3.1.2. Sector Wise Analysis of Economic Growth in Ethiopia
    • 3.1.3. Trends of Domestic Savings and Investment in Ethiopia
    • 3.1.4. Trends of External Sector Economic Growth in Ethiopia
    • 3.1.5. Government Expenditure and Economic Growth
    • 3.1.6. Foreign Aid (ODA) and Economic Growth in Ethiopia
    • 3.1.7. Sectorial Composition of Foreign Aid (ODA) in Ethiopia
  • 3.2. Empirical Results Analysis and Interpretations
    • 3.2.1. Results for Unit-Root Test
    • 3.2.2. Co-integration and Long run Growth Equation Analysis
    • 3.2.3. Short Run VECM Estimation of Economic Growth
    • 3.2.4. Causality Analysis of Aggregate and Sectoral Economic Growth
• CHAPTER FOUR: SUMMARY AND CONCLUSION
  • 4.1. Summary
  • 4.2. Conclusion
  • 4.3. Policy Implication
• Reference
• Appendixes
  • Appendex1: Sample sectorial ODA flow to Ethiopia from DAC donor
  • Appendix 2: Acronym of variables used in data analysis
  • Appendix 3: Results of sample time serious data

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This thesis aims to analyze the impact of foreign aid on economic growth in Ethiopia, focusing on the agriculture, education, and health sectors. The study utilizes econometric techniques to examine the relationship between foreign aid and economic growth in these sectors, considering both long-term and short-term effects.

• The role of foreign aid in promoting economic growth in Ethiopia
• The impact of foreign aid on specific sectors, including agriculture, education, and health
• The effectiveness of foreign aid in achieving development goals in Ethiopia
• The potential challenges and opportunities associated with foreign aid in Ethiopia
• Policy recommendations for optimizing the use of foreign aid for sustainable economic growth

Zusammenfassung der Kapitel (Chapter Summaries)

Chapter One: Introduction provides a comprehensive overview of the study's background, problem statement, objectives, research questions, hypotheses, significance, scope, limitations, and organization. It establishes the context for the research and highlights the importance of understanding the impact of foreign aid on economic growth in Ethiopia.

Chapter Two: Methodology of the Study outlines the research methodology employed in the study, including data types and sources, variable descriptions, model specification, and econometric estimation techniques. It explains the methods used to collect, analyze, and interpret data related to foreign aid and economic growth.

Chapter Three: Result and Discussion presents the empirical results of the study, including descriptive analysis of macroeconomic performance in Ethiopia, sector-wise analysis of economic growth, trends of domestic savings and investment, trends of the external sector, government expenditure, foreign aid, and sectorial composition of foreign aid. It also includes the results of unit-root tests, co-integration analysis, short-run VECM estimation, and causality analysis of aggregate and sectoral economic growth.

Schlüsselwörter (Keywords)

The keywords and focus themes of the text include foreign aid, economic growth, Ethiopia, agriculture, education, health, sectorial analysis, econometrics, unit root, cointegration, VECM, causality, development economics, and policy implications. The study examines the impact of foreign aid on economic growth in Ethiopia, focusing on the agriculture, education, and health sectors, and provides insights into the effectiveness of foreign aid in achieving development goals.

• College: Wollega University (College of business and Economics)
• Course: Development Economics
• Grade: First grade
• Author: Fikadu Goshu (Author)
• Publication Year: 2014
• Pages: 71
• Catalog Number: V281966
• ISBN (eBook): 9783656762911
• ISBN (Book): 9783656762904
• Language: English
• Tags: foreign aid, economic growth, sector, impact, aggregate, Ethiopia