MACROECONOMIC POLICY DETERMINANTS OF ECONOMIC GROWTH IN ETHIOPIA

Abstract

The influence of various macroeconomic policy instruments on economic growth has received growing attention. This study aimed to investigate the macroeconomic factors affecting economic growth in Ethiopia using multivariate time series models, specifically VAR and vector error correction model (VECM). Data were obtained from the World Bank’s World Development Indicators. The results indicated that the existing macroeconomic policy instruments are not effectively promoting economic growth in the country. The analysis showed that while trade openness (OPN) and the interest rate (IR) as a proxy for domestic savings have a positive and significant impact on short-term growth, long-term growth is primarily influenced by exchange rates and foreign currency money supply (Ms). Policymakers should focus on enhancing OPN and increasing domestic savings for immediate economic benefits. In the long run, it is essential to manage exchange rates and foreign currency Ms, as these factors are vital for sustaining economic growth in Ethiopia over the short and long term.

Keywords

• Macroeconomic policy
• economic growth
• vector autoregressive (VAR)