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Ethiopia?s growth acceleration and how to sustain it?insights from a cross-country regression model

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  • Moller,Lars Christian
  • Wacker,Konstantin M.

Abstract

Ethiopia has experienced a growth acceleration over the past decade on the back of an economic strategy emphasizing public infrastructure investment and supported by heterodox macro-financial policies. To analyze the country?s growth performance during 2000?13, the paper employs a neoclassical cross-country System Generalized Method of Moments regression model. The analysis finds that accelerated growth was driven by public infrastructure investment and restrained government consumption, and supported by a conducive external environment. Macroeconomic challenges arising from declining private credit, real currency overvaluation, and relatively high inflation held back some growth. The model accurately predicts Ethiopia?s growth over the period of analysis and is robust to country-specific parameter heterogeneity and alternative infrastructure variables. Looking ahead, model simulations under alternative policy scenarios are indicative that growth may decelerate in the coming decade, making it challenging for Ethiopia to attain its middle-income country target by 2025. Although simulated growth rates do not vary much by policy scenario, the paper discusses some of the emerging risks associated with a continued reliance on the current infrastructure financing model and potential future adjustments.

Suggested Citation

  • Moller,Lars Christian & Wacker,Konstantin M., 2015. "Ethiopia?s growth acceleration and how to sustain it?insights from a cross-country regression model," Policy Research Working Paper Series 7292, The World Bank.
  • Handle: RePEc:wbk:wbrwps:7292
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    Cited by:

    1. Girum Abebe & Margaret McMillan & Michel Serafinelli, "undated". "Foreign Direct Investment and Knowledge Diffusion in Poor Locations," Working Paper series 20-14, Rimini Centre for Economic Analysis.
    2. Admasu Shiferaw, 2016. "Constraints to Private Investment in a High-Growth Environment: Firm-level Evidence from Ethiopia," Working Papers 168, Department of Economics, College of William and Mary.

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