Macroeconomic determinants of external indebtedness of Ethiopia: ARDL approach to co-integration

Sisay Demissew Beyene () and Balázs Kotosz
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Sisay Demissew Beyene: Faculty of Economics and Business Administration, University of Szeged, Szeged, Hungary
Balázs Kotosz: IÉSEG Management School, Lille, France

Society and Economy, 2020, vol. 42, issue 3, 313-332

Abstract: Although Ethiopia is one of the Heavily Indebted Poor Countries (HIPC), there is a lack of empirical studies about the determinants of its external indebtedness. This paper aims to fill this gap by examining the macroeconomic determinants of the external indebtedness of Ethiopia between 1981 and 2016, using the two- and three-gap models as a theoretical framework and an autoregressive distributed lag bound testing approach. The result shows that in the long run, the savings-investment gap, trade deficit, fiscal deficit, and debt service have a positive and significant impact on external indebtedness. However, the growth rate of gross domestic product, trade openness, and inflation negatively and significantly affect the external indebtedness of the country. These results coincide with the predictions of the two- and three-gap models of the theoretical framework. The study argues that appropriate macroeconomic, social, and supply-side policies are essential to reducing the external indebtedness of Ethiopia.

Keywords: macroeconomic determinants; external indebtedness; ARDL; Ethiopia (search for similar items in EconPapers)
JEL-codes: C32 E62 (search for similar items in EconPapers)
Date: 2020
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