CONTRIBUTION OF AGRICULTURE IN THE ETHIOPIAN ECONOMY: A TIME-VARYING PARAMETER APPROACH

Abstract

The objective of this study was to perform causality tests between agriculture and the rest of the economy using a Granger (1969) causality test procedure. Years of bi-directional causality were found between agriculture and manufacturing and services sectors before 1975. During this period, markets were major actors of economic activity and various positive measures, which encouraged the participation of the private sector in economic activity, were implemented. The contribution of agriculture to growth in the manufacturing and services sectors was not significant between 1978 and 1998. This can be attributed to two factors. Firstly, various policies that discouraged private sector participation in economic activity were implemented during the socialist era (between 1978 and 1992). Secondly, although markets were major actors of economic activity between 1992 and 1998, the economy was in a process of transition. Thus little can be expected in such a short time. The contribution of agriculture to growth in the manufacturing sector has been improving since 1989. It is concluded that the freer agriculture is from policy constraints, the higher its contribution becomes to growth in the manufacturing and services sectors.