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Explaining Ethiopia’s Growth Acceleration—The Role of Infrastructure and Macroeconomic Policy

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  • Moller, Lars Christian
  • Wacker, Konstantin M.

Abstract

Ethiopia has experienced an impressive growth acceleration over the past decade. This was achieved on the back of an economic strategy emphasizing public infrastructure investment supported by heterodox macro-financial policies. This paper identifies the drivers of Ethiopia’s recent growth episode and examines the extent to which they were typical or unique. It combines country-specific information with the results of a cross-country panel regression model. We find that Ethiopia’s growth is explained well by factors correlating with growth in a broad range of countries in recent decades, including public infrastructure investment, restrained government consumption, and a conducive external environment. On the other hand, we argue that the policy mix that supported very high levels of public investment in Ethiopia was, to some extent, unique. Interestingly, macroeconomic imbalances due to this heterodox policy mix only moderately held back growth which helps explain why Ethiopia was able to grow so fast in spite of their presence: their negative effects were quantitatively much less important than the positive growth drivers they helped to achieve. The results suggest that “getting infrastructure right” may outweigh moderate shortcoming in the macro framework at early stages of development. We further relate this country-specific finding to the recent growth literature.

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  • Moller, Lars Christian & Wacker, Konstantin M., 2017. "Explaining Ethiopia’s Growth Acceleration—The Role of Infrastructure and Macroeconomic Policy," World Development, Elsevier, vol. 96(C), pages 198-215.
  • Handle: RePEc:eee:wdevel:v:96:y:2017:i:c:p:198-215
    DOI: 10.1016/j.worlddev.2017.03.007
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    Cited by:

    1. Tadesse, Getaw & Zewdie, Tadiwos, 2019. "Grants vs. credits for improving the livelihoods of ultra-poor: Evidence from Ethiopia," World Development, Elsevier, vol. 113(C), pages 320-329.
    2. Mamatzakis, E. & Tsionas, M., 2018. "Revisiting the returns of public infrastructure in Mexico: A limited information local likelihood estimation," Economic Modelling, Elsevier, vol. 75(C), pages 132-141.
    3. Luc Jacolin & Massil Keneck & Alphonse Noah, 2019. "Informal Sector and Mobile Financial Services in Developing Countries: Does Financial Innovation Matter?," Working papers 721, Banque de France.
    4. Erasmo Papagni & Amedeo Lepore & Emanuele Felice & Anna Laura Baraldi & Maria Rosaria Alfano, 2018. "Public Investment and Growth Accelerations: The Case of Southern Italy, 1951-1995," EERI Research Paper Series EERI RP 2018/10, Economics and Econometrics Research Institute (EERI), Brussels.

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