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Ethiopia’s Growth Acceleration and How to Sustain It : Insights from a Cross-Country Regression Model

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World Bank (WB)

Abstract: Ethiopia has experienced a growth acceleration over the past decade on the back of an economic strategy emphasizing public infrastructure investment and supported by heterodox macro-financial policies. To analyze the country’s growth performance during 2000–13, the paper employs a neoclassical cross-country System Generalized Method of Moments regression model. The analysis finds that accelerated growth was driven by public infrastructure investment and restrained government consumption, and supported by a conducive external environment. Macroeconomic challenges arising from declining private credit, real currency overvaluation, and relatively high inflation held back some growth. The model accurately predicts Ethiopia’s growth over the period of analysis and is robust to country-specific parameter heterogeneity and alternative infrastructure variables. Looking ahead, model simulations under alternative policy scenarios are indicative that growth may decelerate in the coming decade, making it challenging for Ethiopia to attain its middle-income country target by 2025. Although simulated growth rates do not vary much by policy scenario, the paper discusses some of the emerging risks associated with a continued reliance on the current infrastructure financing model and potential future adjustments.
Type: Working Paper
Publications & Research
Publications & Research :: Policy Research Working Paper
Link: http://hdl.handle.net/10986/22164
Subject: ECONOMIC BOOM
FORECASTS
GROWTH RATES
MONETARY POLICY
GOVERNMENT EXPENDITURES
POLICY REFORMS
ECONOMIC GROWTH
NATIONAL ACCOUNTS
CAPITAL ACCUMULATION
LAGS
REAL INTEREST RATES
VALUATION
STRUCTURAL CHANGE
STABILIZATION POLICIES
INCOME
INTEREST
MACROECONOMIC MANAGEMENT
INVESTMENT RATE
MARGINAL COST
INTEREST RATE
REAL GDP
EXCHANGE
MACROECONOMIC POLICY
GDP PER CAPITA
TELEPHONE COVERAGE
RESOURCE ALLOCATION
LIQUIDITY
EXPORTS
DEVELOPING COUNTRIES
MARGINAL PRODUCT
POLITICAL ECONOMY
GROWTH MODEL
PUBLIC INFRASTRUCTURE
ECONOMIC POLICY
DEVALUATION
HIGH INFLATION
VARIABLES
TRADE OPENNESS
BENCHMARKS
INPUTS
DEVELOPMENT GOALS
INFLATION
TRENDS
ECONOMIC OUTLOOK
CENTRAL BANK LENDING
BANK LENDING
CENTRAL BANK
DEVELOPMENT
INDIVIDUAL POLICIES
STANDARD DEVIATION
INFLUENCE
EMPIRICAL RESULTS
TOTAL FACTOR PRODUCTIVITY
PER CAPITA INCOME
EXPORT GROWTH
TELECOMMUNICATIONS
LOW-INCOME COUNTRIES
INCOME INEQUALITY
ECONOMIC DOWNTURNS
RELATIVE IMPORTANCE
BASE YEAR
PRODUCTIVITY
ECONOMETRICS
INDUSTRIALIZATION
MONOPOLY
DEMOCRATIC INSTITUTIONS
DEBT
PER CAPITA GROWTH
INFLATION RATE
INCOME LEVELS
ECONOMIC REFORMS
TRADE POLICY
BASKET OF GOODS
NATURAL RESOURCES
AVERAGING
INTEREST RATE EFFECT
PUBLIC INVESTMENT
MACROECONOMIC STABILIZATION
EXTERNAL FACTORS
TAXES
INFRASTRUCTURE INVESTMENT
LEADING INDICATORS
PRODUCTIVITY GROWTH
CONSUMPTION
EMPIRICAL GROWTH MODEL
HUMAN CAPITAL
VALUE ADDED
OPPORTUNITY COST
CAPITAL
WAGES
POPULATION SHARE
INTERNATIONAL TRADE
OPEN MARKET OPERATIONS
ECONOMETRIC ANALYSIS
MACROECONOMIC OUTCOMES
FINANCIAL POLICIES
EXTERNAL CONDITIONS
VALUE
BENCHMARKING
COMPETITIVENESS
CREDIT
MACROECONOMICS
STATE-OWNED ENTERPRISES
NATIONAL INCOME
FACTOR PRICES
AGRICULTURE
GROWTH MODELS
MEASUREMENT
ERROR TERM
REAL EXCHANGE RATE
BENCHMARK
ECONOMIC THEORY
GLOBAL CONDITIONS
POLICY PERSPECTIVE
ECONOMICS
FIXED EFFECTS
TRADE
GDP
GOODS
THEORY
FINANCIAL DEVELOPMENT
GROWTH RATE
INVESTMENT
GROWTH POLICY
GROWTH REGRESSIONS
TOTAL FACTOR PRODUCTIVITY GROWTH
CREDIT RATIONING
GROWTH PERFORMANCE
POVERTY
GROWTH REGRESSION
COUNTRY CHARACTERISTICS
ECONOMIC TRENDS
GINI COEFFICIENT
OVERVALUATION
CAPITAL ACCOUNTS
POLICY RESEARCH
GROWTH POLICIES
HIGH GROWTH
MACROECONOMIC POLICIES
EXCHANGE RATE
PUBLIC SPENDING
OUTCOMES
CONSUMPTION INCREASES
DEVELOPMENT INDICATORS
POSITIVE EFFECTS
MIDDLE INCOME COUNTRIES
PRICES
LONG RUN
GROWTH PROJECTIONS
DEVELOPMENT POLICY
HUMAN DEVELOPMENT
FUTURE RESEARCH
GROWTH




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