Ethiopia’s Growth Acceleration and How to Sustain It

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.

Bibliographic Details

Main Authors:	Moller, Lars Christian, Wacker, Konstantin M.
Format:	Working Paper biblioteca
Language:	English en_US
Published:	World Bank, Washington, DC 2015-06
Subjects:	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,
Online Access:	http://documents.worldbank.org/curated/en/2015/06/24596060/ethiopia’s-growth-acceleration-sustain-itinsights-cross-country-regression-model https://hdl.handle.net/10986/22164
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