Human capital and its impact on Ethiopian economic growth: ARDL approach to co-integration

Figures & data

Figure 1. Geographical map of Ethiopia and its neighboring countries.

Table 1. Specific sources of data

S. No	Variables	Source of data
1	Real gross domestic product (RGDP)	NBE
2	Labour force (LF)	NBE and CSA
3	Gross capital formation (GCF	Planning and economic commission
4	Education expenditure (EDX)	MoE and WDI
5	Health expenditure (HEX)	MOFED
6	Total government expenditure (TGE)	NBE and MoFED
7	Secondary school enrollment (SSE)	MoE and EES
8	Official development assistant (ODA)	IMF
9	Consumer price index (CPI)	NBE

Table 2. Summary of variables’ description

Variables	Description	Unit of measurement
RGDP	Real Gross Domestic Product	The ratio changes in Real GDP
GCF	Gross Capita formation	The ratio of real gross capital formation to GDP
LF	Labor force	Labor force growth rate
EDX	Education expenditure	The ratio of government expenditure on education to GDP
HEX	Health expenditure	The ratio of government expenditure on health to GDP
SSE	Secondary school enrollment	Secondary school enrollment growth rate
TGE	Total government expenditure	The ratio of total government expenditure to GDP
ODA	Official development assistant	The ratio of official development assistants to GDP
CPI	Consumer price index	Price index

Figure 2. Trends in the share of government expenditure on education and health to GDP in Ethiopia.

Source: Own calculation based on MoFED (2021)

Figure 3. Trends of Real GDP in Ethiopia (1980–2020).

Source: Own calculation based on National Bank of Ethiopia data (2020)

Figure 4. Trends of Labor force growth rate in Ethiopia.

Source: Own calculation based on NBE and CSA, 2021

Figure 5. Trends of secondary school enrolment rate in Ethiopia (1980–2020).

Source: Own calculation from MoE and EES (2021) database

Figure 6. Inflation annual percentage change trend, Ethiopia (1980–2020).

Source: own computation from NBE data, 2021

Table 3. Lag order selection

Lag	LogL	LR	FPE	AIC	SC	HQ
0	−141.8175	NA	7.02e-11	7.836796	8.306006	8.005145
1	205.3712	480.7229	8.07e-16	−3.762626	1.867891*	−1.742445
2	400.4398	160.0563*	9.89e-17*	−7.561017*	3.230806	−3.689004*

Note: * Indicates lag order selected by the criterion

Table 4. Augmented Dickey-Fuller and Phillips-Perron Unit Root Tests

At level				At first difference
Series	Intercept	Intercept & trend	Intercept	Intercept & trend
		ADF unit	root test
LnRGDP	2.071	−0.930	−5.18***	−6.23***
LnGCF	1.27	−1.64	−7.42***	−7.92**
LnLF	0.65	−1.09	−3.28***	−3.31***
LnODA	−0.33	−3.31	−7.44***	−5.77***
LnTGE	0.87	−1.52	−5.49***	−5.92***
LnHEX	0.92	−2.96	−8.03***	−8.02***
LnEDX	−0.11	−2.35	−5.97***	−5.88***
LnSSE	−0.024	−1.53	−5.19***	−5.19***
LnCPI	1.91	−0.67	−4.71***	−5.21***
D1	−6.64	−6.61	−6.49**	−6.38***
D2	−5.72*	−5.74	−8.63***	−8.52***
			Philips-Perron
LnRGDP	2.21	−0.880	−5.32***	−6.24***
LnGCF	2.04	−1.34	−7.40***	−14.56**
LnLF	0.38	−1.14	−3.27***	−3.30***
LnODA	−3.30	−3.35	−7.66**	−7.76***
LnTGE	1.74	−1.34	−6.19***	−7.36***
LnHEXP	−0.05	−2.57	−8.40***	−8.78***
LnEDEXP	−0.12	−2.43	−5.98***	−5.90***
LnSSE	−0.28	−1.79	−5.37***	−5.37***
LnCPI	1.68	−0.86	−4.73***	−5.17***
D1	−22.19	−24.12	−39.58**	−39.81***
D1	−6.69	−8.55	−24.14***	−24.19***

Source: Author computation based on the result of EViews 10 computation

Note: The values represent t-statistics of the ADF (upper panel) and PP (lower panel) unit root tests. The asterisks ***, **, and * denote the statistical significance of the test at 1, 5, and 10 percent levels of significance respectively.

Table 5. ARDL Bound test for Long-run relationship

F-Bounds Test		Null Hypothesis: No levels of relationship
Test Statistic	Value	Level of Significance.	I (0)		I (1)
			Asymptotic: n = 1000
F-statistic	4.161872	10%	1.83		2.94
K	10	5%	2.06		3.24
		2.5%	2.28		3.5
		1%	2.54		3.86

Source: Own computation using EViews 10

Table 6. The long-run ARDL parameter estimates

Variable	Coefficient	Std. Error	t-Statistic	Prob.
LNLF	0.213836	0.139033	1.538021	0.1424
LNGCF	0.341793	0.041216	8.292720	0.0000***
LNEDX	0.076883	0.031692	2.425922	0.0267**
LNHEX	0.087692	0.056267	1.558506	0.0375**
LNTGE	−0.023153	0.039738	−0.582653	0.5678
LNSSE	0.018406	0.002784	6.611950	0.0000***
LNODA	−0.059858	0.023822	−2.512720	0.0224**
LNCPI	0.274811	0.082891	3.315335	0.0041***
D1	−0.014811	0.020473	−0.723423	0.4793
D2	0.068543	0.032472	2.110818	0.0499**
C	6.168178	1.402220	4.398866	0.0004***
R-squared	0.999061	Mean dependent var	11.07910
Adjusted R-squared	0.997901	S.D. dependent var	0.722231
S.E. of regression	0.033087	Akaike info criterion	−3.681490
Sum squared resid	0.018611	Schwarz criterion	−2.743071
Log-likelihood	93.78906	Hannan-Quinn criteria	−3.344794
F-statistic	861.3726	Durbin-Watson stat	2.272350
Prob(F-statistic)	0.000000

*Note: P-values and any subsequent tests do not account for model selection.

Source: Own computation using EViews 10, 2021

Notes: The sample period used for estimation is 1980–2020. The asterisks ***, **, and * mark the statistical significance of coefficients at 1, 5, and 10 percent levels of significance, respectively

Table 7. Summary of diagnostics tests

Types of tests	F-statistics	Df	Prob.	Prob. Chi-Square
Breusch-Godfrey test	2.87	F (2,15)	0.0877	0.0645
Heteroskedasticity (BPG)	1.083605	F (21,17)	0.4383	0.3811
Heteroskedasticity (ARCH)	0.434389	F (1,36)	0.5140	0.5009
Normality test (JB-statistics)	0.63		0.72
Ramsey RESET Test	1.186353	(1, 16)	0.2922
Durbin-Watson test	2.27 (d-stat)

Source: Compiled from diagnostics tests after ARDL model estimation using EViews 10, 2021

Figure 7. CUSUM of Squares.

Source: Model diagnostics test result using EViews 10

Table 8. ECM Regression

Variable	Coefficient	Std. Error		t-Statistic	Prob.
C	6.168178	0.721084		8.554031	0.0000***
D(LNGCF)	0.064973	0.024677		2.632922	0.0174**
D (LNGCF (−1))	−0.187491	0.040788		−4.596668	0.0003***
D(LNHEX)	−0.012495	0.012768		−0.978635	0.3415
D (LNHEX (−1))	0.026239	0.013610		1.927873	0.0707*
D(LNSSE)	0.006373	0.002735		2.330218	0.0324**
D (LNSSE (−1))	−0.012243	0.003850		−3.179814	0.0055***
D(LNODA)	−0.018337	0.009722		−1.886114	0.0765*
D(LNCPI)	−0.013965	0.058662		−0.238053	0.8147
D (LNCPI (−1))	−0.473676	0.093163		−5.084405	0.0001***
D(D2)	0.024881	0.008829		2.818129	0.0118**
CointEq (−1) *	−0.952854	0.111745		−8.527036	0.0000***
R-squared	0.861643	Mean dependent var			0.056578
Adjusted R-squared	0.805276	S.D. dependent var			0.059496
S.E. of regression	0.026254	Akaike info criterion			−4.194311
Sum squared resid	0.018611	Schwarz criterion			−3.682446
Log-likelihood	93.78906	Hannan-Quinn criteria			−4.010658
F-statistic	15.28614	Durbin-Watson stat			2.272350
Prob(F-statistic)	0.000000

Sources: own computation using EViews 10

The dependent variable is DCPIt over the sample period 1981–2020. The asterisks ***, **, and * mark the statistical significance of coefficients at 1, 5, and 10 percent levels of significance, respectively.