Macroeconomic determinants of economic growth in Ethiopia

In this paper we examined the macroeconomic determinants of economic growth in Ethiopia. We used annual tome series data ranging from 1980–2014. We used the Johansen multivariate analysis and the vector error correction model. We have found out that, social welfare expenditure has positive and significant impact on the economic growth of Ethiopia while gross domestic capital formation has negative significant impact on the economic growth of the country. The other findings, though not significant, are also reflections of what the Ethiopian economy looks like. The country is agrarian (agricultural development has positive impact), there is no return from mining & energy (as we have negative impact), too much dependent population and those with no jobs (population has negative impact). As a recommendation we suggest that government should do more privatization (as most of the investments currently are government affiliated and this might have resulted in the negative impact), create more conducive investment climate, more infrastructure development, keep up on developing and mechanizing agriculture, more population control and more jobs.