A Half-Century of Spending: Unveiling the Long-Term Relationship between Public Expenditure and Economic Growth in Ethiopia

Abstract

Ethiopia’s remarkble economic progress over the last decades cannot be fully grassped without scrutinizing the enigmatic role of government expenditure. Thus, this study examined the impact of public spending on Ethiopia's economic growth for the period 1970-2022, using a cointegrated VAR approach. The results show that long-term government expenditure on investments, health care, consumption, and education has a significant effect on economic growth. Furthermore, every variable demonstrates statistical significance, and these factors hold the most significance in elucidating the relationship between government spending and economic growth. Thus, this study suggests that the government might increase expenditure on education, health, and public investment while considering the efficiency of the sectors to obtain a sustained economic growth in the country.