Predictability of foreign aid and economic growth in Ethiopia

Figures & data

Figure 1. Trends of economic growth performance in Ethiopia.

Source: WB Data Base

Figure 2. Trends of Foreign aid and Growth rate in Ethiopia.

Source: WDI, 2020

Figure 3. Aid commitment and disbursement to Ethiopia.

Table 1. Descriptions of variables used in the study

Variable	Symbol	Measurement	Hypothesis
Dependent Variables
Real GDP per capita (Y)	${\mathrm{Y}}_{\mathrm{t}}$	The ratio of the market value of all goods and services produced in an economy and population who lived in the country. This variable is also considered as a standard of living indicator.	NA
Independent Variables
Private Investment	$\mathrm{P}\mathrm{i}\mathrm{n}{\mathrm{v}}_{\mathrm{t}}$	An injection of capital into a business from a private investor, obtained by deducting government investment from gross fixed capital investment.	Positive
Foreign aid	$\mathrm{A}\mathrm{i}{\mathrm{d}}_{\mathrm{t}}$	Defined as net official development assistance flow from bilateral donor countries and multilateral organizations. It consists all grant component and concessional loans with grant elements of at least 25 percent.	Positive
Aid Predictability Indicator	Xaid	Is the difference between aid commitment and its actual disbursement as a percentage of disbursement	Negative
Tax Revenue	Tax	Is defined as revenue collected by central government from different types of taxes.	Negative
External Debt	Fdebt	Defined as the amount of money borrowed by the government from foreign lenders including commercial banks, governments or international financial institutions.	Negative
Policy Index	Policy	Constructed by indexing the selected macroeconomic policy variables, such as, Inflation (Monetary policy), trade openness (Trade policy) and final government consumption (Fiscal policy).	Positive
Labor force	Lf	Are all people whose ages are 15 and older and actively participated in an economy. It includes both employed and unemployed.	Positive

Table 2. Unit root test (augmented dickey-fuller test)

Augmented Dickey-Fuller test statistic (ADF Test)
Variable	With Intercept			With Intercept and Trend
	At Level	At First difference	Decision	At Level	At First difference	Decision
LnY	1.716	−3.967	I[1] at 1%	0.509	3.466	I[1] at 10%
LnPinv	2.80	−2.68	I[0] at 10%	−2.447	6.388	I[1] at 1%
LnAid	−2.354	−5.627	I[1] at 1%	−2.487	−5.591	I[1] at 1%
LnTax	−2.917	−4.292	I[1] at 1%	−3.215	−4.573	I[1] at 1%
LnLf	−2.019	−3.597	I[1] at 5%	−1.946	−3.579	I[1] at 5%
LnXaid	−7.002	−7.555	I[0] at 1%	−7.241	−7.437	I[0] at 1%
LnPolicy	−1.337	−3.672	I[1] at 5%	−4.255	−3.445	I[0] at 5%

Source: Eview 9.0 results

Table 3. Short run and long run ARDL estimation result

Dependent variable: $\Delta$ (Real GDP per Capital), No. observation = 32
Variable	Coefficients	t-statistics
Constant	5.124920
D(LNAID)	0.049206	1.060480**
D(LNAID(−1))	−0.073723	−2.427636**
D(LNLF)	−0.067820	−0.222904
D(LNPINV)	0.012921	0.482078
D(LNPOLICY)	−0.133431	−2.825497**
D(LNPOLICY(−1))	−0.246516	−5.227063*
D(LNTAX)	0.138017	2.259057**
D(LNXAID)	0.024176	2.761719**
ECM(−1)	−0.250461	−4.179905*
Long run
LNAID	0.492116	4.594933*
LNLF	−4.893052	−2.780819**
LNPINV	0.051588	0.490580
LNPOLICY	0.516260	2.639878**
LNTAX	0.551051	2.757443**
LNXAID	0.184046	3.017888*

Diagnostic Tests

R-Squared 0.99033 Adjusted R-Squared 0.98335

Jarque-Bera (P-value) 0 .448 Ramsey RESET: P-value 0.4485

F-statistic 6.422938 Breusch-Godfrey Serial Correlation LM: P value 0.125

*, ** significant at 1 and 5 percent, respectively.

Figure 4. Testing parameter stability using CUSUM and CUSUMSQ test.

Data Availability statement

Data and material would be made available upon request.