The empirical analysis on dynamics of currency devaluation, external debt to GDP ratio, and output growth: evidence from Ethiopia

Figures & data

Table 1. Variable description and hypothesis of the study.

Variables	Definition/Description	Source	Expected Sign
RGDP	The monetary value of Real Gross Domestic Product at basic year price which measures output growth	National Bank of Ethiopia (NBE), EEA	Dependent variable
E	Exchange rate in Ethiopia at a period measured (Birr/USD) in a year being used as a proxy for devaluation	National Bank of Ethiopia (NBE), EEA	+/–
ED/GDP	External debt to gross domestic product ratio at a period	National Bank of Ethiopia (NBE), MOFED report	–
MS/P	Real money supply at a period in Ethiopia	National Bank of Ethiopia (NBE), EEA	+
Eexp	The monetary value of government expenditure on education in a year (in terms of capital spending on education) which is a proxy for human capital	National Bank of Ethiopia (NBE), EEA, MOFED	+
PI	The monetary value of private investment in a period which contains both domestic and foreign investment in a time	Ethiopian Investment Commission (EIC), National Bank of Ethiopia (NBE), MOFED	+
INF	The general price level of commodities in a year	NBE, MOFED (Ministry of Finance and Economic Development)	–

Table 2. Unit root test at level and first difference.

Variables	ADF test statistics		PP test statistics
	At level	At First difference	At level	At first difference
LN RGDP	−0.741	−4.651***	−0.344	−4.651***
LN E	−2.308	−3.789***	−2.352	−7.687***
LN (ED/GDP)	−2.100	−3.890***	−1.501	−3.894***
LN PI	−1.174	−3.928***	−1.108	−3.808***
LN EEXP	−5.042***	−10.799***	−5.034***	−10.596***
LN (M^s/P)	−2.081	−5.927***	0.695	−5.764***
INF	−3.593**	−7.228***	−3.658**	−12.083***

Note that *** and ** refer to significance at the 1% and 5% levels, respectively.

Source: own computation.

Table 3. Determination of lag length.

Lag	LogL	LR	FPE	AIC	SC	HQ
0	13.169	NA	0.037	−0.456	−0.121	−0.357
1	24.059	15.326*	0.018*	−1.189*	−0.805*	−1.075*
2	24.450	0.522	0.019	−1.144	−0.712	−1.016

Note that: * refers to level of significance at 10%.

Table 4. Bound test.

Computed F-statistics = 15.56***	Critical values
	Lower Bound = I(0)	Upper Bound = I(1)
At 1% significant level	3.15	4.43
At 5% significant level	2.45	3.61
At 10% significant level	2.12	3.23

Table 5. Estimated coefficients of short run dynamics error correction model.

Dependent variable: D(LNRGDP)
Independent variables	Coefficients	t-statistics	Probability
D(LN E)	−0.0005	−1.25	0.2354
D(LN ED/GDP)	−0.0003	−0.75	0.0573
D(LN PI)	−0.060	−6.20	0.0000***
D(LN EEXP)	0.0042	1.10	0.0962
D(LN Ms/P	−0.036	−0.31	0.0000***
D(INF)	0.004	3.79	0. 0026**
C	7.728	12.29	0.0014**
ECMt-1	−0.722	−12.13	0.0000***
Adj-R2 = 0.8427

Note: *, **, and *** indicate significance at the 10%, 5%, and 1% levels, respectively.

Table 6. Estimated long run results1.

Dependent variable: LNRGDP
Independent variables	Coefficients	t-statistics	Probability
LN E	0.376	2.364	0.0302**
LN (ED/GDP)	−0.314	−5.678	0.0000***
LN PI	−0.300	−11.84	0.0000***
LN EEXP	0.167	2.289	0.0351**
LN (M^s/P)	0.540	3.965	0.0010***
INF	0.013	4.306	0.0005***

Note: *, **, and *** indicate significance at the 10%, 5%, and 1% levels, respectively.

Figure 1. CUSUM test result.