Does real exchange rate matter better than trade volumes in triggering labour productivity growth? Evidence from Ethiopia

Figures & data

Table 1. Descriptive statistics of the variables

Variable	$y$	$k$	$x$	$m$	$rer$
Mean	1827.262	2723.943	34735.14	92902.47	28.13607
Std. dev.	822.2697	2707.821	72526.04	206590	19.11571
Maximum	5248.32	11173.6	350718.8	951692.4	95.50617
Minimum	997.3646	609.0568	966.7354	617.5226	5.64379
Skewness	2.218767	1.446871	2.631202	2.644255	1.303841
Kurtosis	7.789773	3.860804	9.366312	9.116897	4.606157
Observation	70	70	70	70	70

Table 2. Unit root tests’ results

Variables	KPSS test statistics		ADF test statistics		PP test statistics
	Level	1^st difference	Level	1^st difference	Level	1^st difference
$lny$	0. 30***	0.02	1.21	−4.58 ***	0.99	−9.05 ***
$lnk$	0.74***	0.16	−0.64	−3.86 **	−0.23	−3.25 **
$lnx$	0.72***	0.12	−0.38	−4.73 ***	−0.23	−7.86 ***
$lnm$	0.76***	0.151	−0.35	−4.88 ***	−0.18	−7.67 ***
$rer$	0.74***	0.08	0.004	−5.50 ***	0.314	−6.46 ***

Note: The KPSS (1992) 1% critical value = 0.216, the MacKinnon (1996) 1% critical values for the ADF and the PP tests = −4.020. For KPSS (ADF& PP), ***, ** and * respectively denote significance (rejections) at the 1%, 5% and 10% levels.

Table 3. Results for lag selection criteria

Lag	LL	LR	FPE	AIC	HQIC	SBIC
0	19.7923	NA	0.000027	0.817422	0.920885	1.07854
1	335.275	710.13	1.2e-09	−9.15514	−8.84475	−8.37179*
2	362.376	54.202*	9.0e-10*	−9.48164*	−8.96433*	−8.17605

*denotes selected lags per criterion.

Table 4. Johansen’s co- integration test results

Null hypothesis	$\lambda$-Trace statistic	1% critical value	$\lambda$- Max statistic	1% critical value
$r\le 0$	89.7514	76.07	51.1510	38.77
$r\le 1$	38.6004***	54.46	18.9238***	32.24
$r\le 2$	19.6766	35.65	10.4673	25.52
$r\le 3$	9.2093	20.04	7.6402	18.63
$r\le 4$	1.5691	6.65	1.5691	6.65

r denotes the hypothesized co-integrating equation. *** indicates rejection at 1% significance level.

Table 5. DOLS regression results

Dependent variable: $ln{y}_t$	Coef.	Std. Err.	t	P>|t|
$ln{k}_t$	0.564	0.546	1.03	0.326
$ln{x}_t$	−1.2388	0.43769	−2.83	0.018
$ln{m}_t$	0.8398	0.3895	2.16	0.056
$lnre{r}_t$	0.0214	0.0065	3.29	0.008
$\mathrm{\Delta }ln{k}_{t-2}$	−2.99447	1.4849	−2.02	0.071
$\mathrm{\Delta }lnx$	0.79866	0.3648	2.19	0.053
$\mathrm{\Delta }ln{x}_{t-1}$	0.8436	0.31772	2.66	0.024
$\mathrm{\Delta }ln{x}_{t-2}$	0.7936	0.3686	2.15	0.057
$\mathrm{\Delta }ln{x}_{t-3}$	0.7413	0.2552	2.90	0.016
$\mathrm{\Delta }lnm$	−0.6279	0.2722	−2.31	0.044
$\mathrm{\Delta }ln{m}_{t-1}$	−0.7391	0.2578	−2.87	0.017
$\mathrm{\Delta }ln{m}_{t-2}$	−0.666	.30435	−2.19	0.053
$\mathrm{\Delta }ln{m}_{t-3}$	−0.6115	0.233	−2.62	0.026
$\mathrm{\Delta }lnre{r}_{t-1}$	−0.0134	0.00733	−1.83	0.097
Constant	6.2597	1.772	3.53	0.005
Adj R-squared = 0.9888	Durbin-Watson d-statistic = 2.128	JB = 0.8632(0.6495)	_hat = 0.73622(0.293)	_hatsq = 0.01743 (0.705)
ARCH(1) = 0.573(0.4491)	ARCH(2) = 1.305 (0.5208)	ARCH(3) = 1.737(0.6287)	ARCH(4) = 2.562(0.6336)	ARCH(5) = 3.59(0.6098)

H0: no ARCH effects vs. H1: ARCH(p) disturbance

Figure 1. The model stability test result.

Table 6. Granger—causality tests results based on VECM

	$\mathbf{\Delta }ln{y}_t$		$\mathbf{\Delta }ln{k}_t$		$\mathbf{\Delta }ln{x}_t$		$\mathbf{\Delta }ln{m}_t$		$\mathbf{\Delta }re{r}_t$	$\mathit{E}C{T}_{-1}$
Panel A: Short run and long run Granger - causality tests results
$\mathrm{\Delta }ln{y}_t$	-		2.96* $\left(0.086\right)$		1.00 $\left(0.31\right)$		0.30 $\left(0.58\right)$		0.01 $\left(0.94\right)$	−0.11*** $\left(0.008\right)$
$\mathrm{\Delta }ln{k}_t$	0.78 $\left(0.37\right)$		-		0.62 $\left(0.42\right)$		7.18*** $\left(0.007\right)$		3.98** $\left(0.05\right)$	−0.06*** $\left(0.000\right)$
$\mathrm{\Delta }ln{x}_t$	3.47* $\left(0.06\right)$		9.77**** $\left(0.002\right)$		-		0.50 $\left(0.47\right)$		12.33*** $\left(0.0004\right)$	−0.47*** $\left(0.00\right)$
$\mathrm{\Delta }ln{m}_t$	0.28 $\left(0.59\right)$		9.69*** $\left(0.002\right)$		5.31** $\left(0.02\right)$		-		3.40* $\left(0.07\right)$	−0.38*** $\left(0.00\right)$
$\mathrm{\Delta }re{r}_t$	10.47*** $\left(0.001\right)$		1.23 $\left(0.26\right)$		0.02 $\left(0.88\right)$		0.00 $\left(0.94\right)$		-	−4.1 $\left(0.15\right)$
Causality From To				Long Run		Short Run		Summary of causality
Panel B: Direction of causality
$k$		$y$		Yes		Yes		Feedback
$y$		$k$		Yes		No
$x$		$y$		Yes		No		Feedback
$y$		$x$		Yes		Yes
$m$		$y$		Yes		No		Feedback
$y$		$m$		Yes		No
$rex$		$y$		Yes		No		Feedback
$y$		$rex$		No		Yes

Figures in brackets are P-values for error correction coefficients and Wald ${\chi }^2$test. ***, ** & denote rejection at 1%, 5% and at 10%, respectively.

Table 7. Variance decomposition results

Period	y	k	x	m	rer
Variance decomposition of labour productivity
5	91. 954	1.1733	0.3991	3.0351	3.4385
10	75.2993	2.7751	2.004	7.7153	12.2064
15	56.4765	8.8	3.6527	10.5022	20.6587
20	42.3686	14.9499	4.7842	11.7963	26.101
Variance decomposition of capital
5	2.723	86.3402	1.72447	0.159	9.0531
10	4.4229	79.4818	2.5747	0.2564	13.2641
15	5.2808	75.9064	3.0068	0.5205	15.2855
20	5.7786	73.7958	3.2585	0.7342	16.4328
Variance Decomposition of exports
5	3.3999	0.8641	55.0571	7.0496	33.6293
10	6.6761	5.0031	32.7649	10.3625	45.1934
15	8.4997	10.676	21.2162	11.0651	48.543
20	9.4759	15.0549	15.0322	11.1095	49.3275
Variance Decomposition of Imports
5	1.6664	2.754	16.327	62.6034	16.6491
10	4.1698	1.9955	9.0014	59.0343	25.7991
15	5.9212	4.6696	5.4099	53.5025	30.4967
20	7.0076	7.6339	3.5604	48.9266	32.8715
Variance Decomposition of Real exchange rate
5	1.8281	17.1366	7.4553	1.4594	72.1205
10	0.7901	17.7037	7.1367	1.6398	72.7297
15	0.503	18.0483	6.9474	1.699	72.8024
20	0.3704	18.2837	6.8153	1.7327	72.7978

Table A1. Growth accounting analysis results of labour productivity and country level figures

	Growth rates (%)			Contribution to labour productivity (%)
Period	Labour productivity	Capital deepening	Total Factor Productivity	Capital	Total factor productivity
Average (2019–1950)	2.40	4.13	−0.197	33.85	66.15
EPRDF	3.71	7.07	−0.74	41.54	58.45
2019 –2016	10.31	8.58	4.89	92.10	7.89
2015 –2011	5.53	2.34	4.05	42.37	57.62
2010– 2006	6.29	6.55	2.16	17.98	82.01
2005 –2001	6.66	11.33	−0.47	48.55	51.44
2000 – 1996	−2.00	9.06	−7.71	56.54	43.45
1995–1991	−3.18	4.86	−6.25	1.79	98.20
Derg period(1990–1974)	0.88	0.65	0.46	0.96	99.03
1990 – 1985	−1.34	3.25	−3.39	−27.31	127.31
1984 – 1980	5.22	−1.62	6.25	0.05	99.94
1979 – 1974	−0.35	−0.70	0.09	41.47	58.52
Imperial period(1973–1951)	1.88	2.99	−0.004	48.47	51.52
1973 – 1971	0.55	1.38	−0.31	37.54	62.45
1970 – 1966	0.84	3.92	−1.62	−182.93	282.93
1965 – 1961	2.74	4.668	−0.19	415.71	−315.718
1960 – 1956	1.16	4.12	−1.43	−84.98	184.98
1955 – 1951	3.56	0.22	3.42	52.66	47.33
Labour productivity levels at 2017 PPP dollars
Year	Ethiopia	Kenya	Malawi	Nigeria	South Africa	USA
1950	997.36	3251.63	-	4658.37	12809.73	39600.94
2019	5248.32	8903.48	2733.81	13626.96	39429.2	129918.4

Source: author computation from Penn World Tables.

MacKinnon, J. G. (1996). Numerical distribution functions for unit root and cointegration tests. Journal of Applied Econometrics, 11(6), 601–618.

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