Vector Autoregressive Modelling of Some Economic Growth Indicators of Ethiopia

Abstract

The objective of this study is to investigate the effect of export and import on real economic growth of Ethiopia. Yearly data set on the variables are obtained for the period 1982 to 2015 from national bank of the country. Johansen cointegration test suggests that there is no long run relationship of export and import with real GDP. The vector autoregressive analysis suggests that the lagged variables of both export and import have significant contributions in predicting the economic growth of the country. Impulse response estimates reveal that there is negative impact due to shocks from export on real economic growth but later converges to zero. The shocks from import produces continuous responses in the long run. The forecast error variance decomposition approach shows that most of the variance is attributable to own shocks but at long time horizon import shock accounts for almost half of the variability in real GDP. Short and long-term planning for bringing about economic growth of Ethiopia should employ extensive analysis of the relationship among such determinant factors as export and import. Ethiopia may explore the export-led growth by attracting more capital investments with enhanced technology and competitive industrial productions for exports.

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