Government Expenditure for Economic Growth: The Ethiopian Experience

Abstract

This article investigates the relationship between sectoral government expenditure with economic growth in Ethiopia. In this study, the time series data from the period 1979–2018 is used. Autoregressive Distributed Lag approach to co-integration and error correction model are applied to investigate the short- and long-run impacts of government expenditure on economic growth. Using bound test approach to cointegration, the study revealed that agriculture, health and road expenditure has positive and significant in the long run, while expenditure on health and road has also a positive and statistically significant in short run. Applying the Granger causality test, we found a unidirectional causality running from health, transportation and communication and road government expenditure to growth at the one lag length. Therefore, it is important that the government better to spend on agriculture, health and road sectors of government expenditure for better development on these sectors and also should increase the efficiency of financial resources.