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Foreign debt-economic growth nexus in Ethiopia: ARDL approach

Author

Listed:
  • Mengistu Negussie Amare
  • Malefiya Ebabu Tekea

Abstract

This paper aims to analyse the contribution of foreign public debt to Ethiopian economic growth. The ARDL co-integration model with the real gross domestic product (RGDP) and consistently affecting factors was employed to achieve this task. The result indicates that debt service payment and debt service to export earnings ratio have an adverse effect. However, they are insignificant to Ethiopia's economic growth. The total foreign debt stock to RGDP has a negative and substantial consequence on the RGDP. The Granger causality test shows a causal relationship between the ratio of the total stock of external debt to RGDP (TEDTRGDP) and RGDP. The coefficient of the error correction equation (176.3%) also dictated a speedy pace of adjustment to converge to the long-run equilibrium after some shock. The study concludes that huge external debt slows a country's economic progress, and there is an issue of debt overhang in the Ethiopian economy.

Suggested Citation

  • Mengistu Negussie Amare & Malefiya Ebabu Tekea, 2023. "Foreign debt-economic growth nexus in Ethiopia: ARDL approach," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 15(3), pages 306-324.
    • Handle: RePEc:ids:ijsuse:v:15:y:2023:i:3:p:306-324
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