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Macroeconomic determinants of external indebtedness of Ethiopia: ARDL approach to co-integration

Author

Listed:
  • Sisay Demissew Beyene

    (Faculty of Economics and Business Administration, University of Szeged, Szeged, Hungary
    College of Business and Economics, Arsi University, Asella, Ethiopia)

  • Balázs Kotosz

    (IÉSEG Management School, Lille, France)

Abstract

Although Ethiopia is one of the Heavily Indebted Poor Countries (HIPC), there is a lack of empirical studies about the determinants of its external indebtedness. This paper aims to fill this gap by examining the macroeconomic determinants of the external indebtedness of Ethiopia between 1981 and 2016, using the two- and three-gap models as a theoretical framework and an autoregressive distributed lag bound testing approach. The result shows that in the long run, the savings-investment gap, trade deficit, fiscal deficit, and debt service have a positive and significant impact on external indebtedness. However, the growth rate of gross domestic product, trade openness, and inflation negatively and significantly affect the external indebtedness of the country. These results coincide with the predictions of the two- and three-gap models of the theoretical framework. The study argues that appropriate macroeconomic, social, and supply-side policies are essential to reducing the external indebtedness of Ethiopia.

Suggested Citation

  • Sisay Demissew Beyene & Balázs Kotosz, 2020. "Macroeconomic determinants of external indebtedness of Ethiopia: ARDL approach to co-integration," Society and Economy, Akadémiai Kiadó, Hungary, vol. 42(3), pages 313-332, September.
    • Handle: RePEc:aka:soceco:v:42:y:2020:i:3:p:313-332
    DOI: 10.1556/204.2020.00013
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    Cited by:

    1. Ngasamiaku, Wilhelm M. & Ngong'ho, Sende, 2022. "Macroeconomic Determinants of Public Debt in Tanzania: Empirical Evidence and lessons for Post COVID-19 Recovery," African Journal of Economic Review, African Journal of Economic Review, vol. 10(5), December.

    More about this item

    Keywords

    macroeconomic determinants; external indebtedness; ARDL; Ethiopia;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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