The Impact of Capital Expenditure on Ethiopian Economic Growth

Wondimu Mekonnen

doi:doi:10.11648/j.ijfbr.20241005.11

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The Impact of Capital Expenditure on Ethiopian Economic Growth

Wondimu Mekonnen^*

Published in International Journal of Finance and Banking Research (Volume 10, Issue 5)

Received: 11 September 2023 Accepted: 10 October 2024 Published: 29 October 2024

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Abstract

This study investigates the effect of disaggregated capital expenditure on economic growth in Ethiopia over the period from 1981 to 2021. An autoregressive distributed lag (ARDL) model, combined with a Granger causality test, is used for the econometric analysis. The empirical results reveal that capital expenditure on economic development (CAEE), recurrent expenditure (RCE), and the inflation rate (CPI) have significant positive impacts on economic growth in both the long run and short run. However, capital expenditure on administrative and general development (CEAG) has a significant negative effect on economic growth in the long run. The Granger causality test further indicates unidirectional causality from economic growth (GNI) to capital expenditure on economic development (CAEE). Based on these findings, the study recommends that the Ministry of Finance should increase its budget allocations for capital expenditures aimed at economic development in order to further stimulate economic growth. Additionally, the government should implement stricter follow-up and monitoring mechanisms to ensure the proper management of budget allocations, particularly regarding capital expenditures on social development and administrative and general development. These measures are crucial for sustaining long-term economic growth in Ethiopia.

Published in	International Journal of Finance and Banking Research (Volume 10, Issue 5)
DOI	10.11648/j.ijfbr.20241005.11
Page(s)	84-91
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Capital Expenditure, GNI, CAEE, CES, CEAG, ARDL

References

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[4]	Bargicho, S. E. I. D. A. (2016). The effects of government expenditure and tax on economic growth in Ethiopia.
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[7]	Gujarati, D. and Porter, D. C., 2010. Functional forms of regression models. Essentials of econometrics, 6, pp. 132-177.
[8]	Ketema, T. (2006). The impact of government spending on economic growth: The case of Ethiopia. Addis Ababa University School of Graduate Studies, (Unpusblished Master Thesis).
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[10]	Kryeziu, N. and Durguti, E. A., 2019. The impact of inflation on economic growth: The case of Eurozone. International Journal of Finance & Banking Studies (2147-4486), 8(1), pp. 01-09.
[11]	Modebe, N. J., Okafor, R. G., Onwumere, J. U. J. and Ibe, I. G., 2012. Impact of recurrent and capital expenditure on Nigeria’s economic growth. European Journal of Business and Management, 4(19), pp. 66-74.
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[18]	Hasnul, A. G., 2015. The Effects of Government Expenditure on Economic Growth: the Case of Malaysia.

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Mekonnen, W. (2024). The Impact of Capital Expenditure on Ethiopian Economic Growth. International Journal of Finance and Banking Research, 10(5), 84-91. https://doi.org/10.11648/j.ijfbr.20241005.11

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Mekonnen, W. The Impact of Capital Expenditure on Ethiopian Economic Growth. Int. J. Finance Bank. Res. 2024, 10(5), 84-91. doi: 10.11648/j.ijfbr.20241005.11

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Mekonnen W. The Impact of Capital Expenditure on Ethiopian Economic Growth. Int J Finance Bank Res. 2024;10(5):84-91. doi: 10.11648/j.ijfbr.20241005.11

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@article{10.11648/j.ijfbr.20241005.11,
  author = {Wondimu Mekonnen},
  title = {The Impact of Capital Expenditure on Ethiopian Economic Growth},
  journal = {International Journal of Finance and Banking Research},
  volume = {10},
  number = {5},
  pages = {84-91},
  doi = {10.11648/j.ijfbr.20241005.11},
  url = {https://doi.org/10.11648/j.ijfbr.20241005.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijfbr.20241005.11},
  abstract = {This study investigates the effect of disaggregated capital expenditure on economic growth in Ethiopia over the period from 1981 to 2021. An autoregressive distributed lag (ARDL) model, combined with a Granger causality test, is used for the econometric analysis. The empirical results reveal that capital expenditure on economic development (CAEE), recurrent expenditure (RCE), and the inflation rate (CPI) have significant positive impacts on economic growth in both the long run and short run. However, capital expenditure on administrative and general development (CEAG) has a significant negative effect on economic growth in the long run. The Granger causality test further indicates unidirectional causality from economic growth (GNI) to capital expenditure on economic development (CAEE). Based on these findings, the study recommends that the Ministry of Finance should increase its budget allocations for capital expenditures aimed at economic development in order to further stimulate economic growth. Additionally, the government should implement stricter follow-up and monitoring mechanisms to ensure the proper management of budget allocations, particularly regarding capital expenditures on social development and administrative and general development. These measures are crucial for sustaining long-term economic growth in Ethiopia.},
 year = {2024}
}

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TY  - JOUR
T1  - The Impact of Capital Expenditure on Ethiopian Economic Growth
AU  - Wondimu Mekonnen
Y1  - 2024/10/29
PY  - 2024
N1  - https://doi.org/10.11648/j.ijfbr.20241005.11
DO  - 10.11648/j.ijfbr.20241005.11
T2  - International Journal of Finance and Banking Research
JF  - International Journal of Finance and Banking Research
JO  - International Journal of Finance and Banking Research
SP  - 84
EP  - 91
PB  - Science Publishing Group
SN  - 2472-2278
UR  - https://doi.org/10.11648/j.ijfbr.20241005.11
AB  - This study investigates the effect of disaggregated capital expenditure on economic growth in Ethiopia over the period from 1981 to 2021. An autoregressive distributed lag (ARDL) model, combined with a Granger causality test, is used for the econometric analysis. The empirical results reveal that capital expenditure on economic development (CAEE), recurrent expenditure (RCE), and the inflation rate (CPI) have significant positive impacts on economic growth in both the long run and short run. However, capital expenditure on administrative and general development (CEAG) has a significant negative effect on economic growth in the long run. The Granger causality test further indicates unidirectional causality from economic growth (GNI) to capital expenditure on economic development (CAEE). Based on these findings, the study recommends that the Ministry of Finance should increase its budget allocations for capital expenditures aimed at economic development in order to further stimulate economic growth. Additionally, the government should implement stricter follow-up and monitoring mechanisms to ensure the proper management of budget allocations, particularly regarding capital expenditures on social development and administrative and general development. These measures are crucial for sustaining long-term economic growth in Ethiopia.
VL  - 10
IS  - 5
ER  -

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Author Information

Wondimu Mekonnen

Faculty of Business and Economics, Kotebe University of Education, Addis Ababa, Ethiopia

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APA Style

Mekonnen, W. (2024). The Impact of Capital Expenditure on Ethiopian Economic Growth. International Journal of Finance and Banking Research, 10(5), 84-91. https://doi.org/10.11648/j.ijfbr.20241005.11

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ACS Style

Mekonnen, W. The Impact of Capital Expenditure on Ethiopian Economic Growth. Int. J. Finance Bank. Res. 2024, 10(5), 84-91. doi: 10.11648/j.ijfbr.20241005.11

Copy | Download

AMA Style

Mekonnen W. The Impact of Capital Expenditure on Ethiopian Economic Growth. Int J Finance Bank Res. 2024;10(5):84-91. doi: 10.11648/j.ijfbr.20241005.11

Copy | Download

@article{10.11648/j.ijfbr.20241005.11,
  author = {Wondimu Mekonnen},
  title = {The Impact of Capital Expenditure on Ethiopian Economic Growth},
  journal = {International Journal of Finance and Banking Research},
  volume = {10},
  number = {5},
  pages = {84-91},
  doi = {10.11648/j.ijfbr.20241005.11},
  url = {https://doi.org/10.11648/j.ijfbr.20241005.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijfbr.20241005.11},
  abstract = {This study investigates the effect of disaggregated capital expenditure on economic growth in Ethiopia over the period from 1981 to 2021. An autoregressive distributed lag (ARDL) model, combined with a Granger causality test, is used for the econometric analysis. The empirical results reveal that capital expenditure on economic development (CAEE), recurrent expenditure (RCE), and the inflation rate (CPI) have significant positive impacts on economic growth in both the long run and short run. However, capital expenditure on administrative and general development (CEAG) has a significant negative effect on economic growth in the long run. The Granger causality test further indicates unidirectional causality from economic growth (GNI) to capital expenditure on economic development (CAEE). Based on these findings, the study recommends that the Ministry of Finance should increase its budget allocations for capital expenditures aimed at economic development in order to further stimulate economic growth. Additionally, the government should implement stricter follow-up and monitoring mechanisms to ensure the proper management of budget allocations, particularly regarding capital expenditures on social development and administrative and general development. These measures are crucial for sustaining long-term economic growth in Ethiopia.},
 year = {2024}
}

Copy | Download

TY  - JOUR
T1  - The Impact of Capital Expenditure on Ethiopian Economic Growth
AU  - Wondimu Mekonnen
Y1  - 2024/10/29
PY  - 2024
N1  - https://doi.org/10.11648/j.ijfbr.20241005.11
DO  - 10.11648/j.ijfbr.20241005.11
T2  - International Journal of Finance and Banking Research
JF  - International Journal of Finance and Banking Research
JO  - International Journal of Finance and Banking Research
SP  - 84
EP  - 91
PB  - Science Publishing Group
SN  - 2472-2278
UR  - https://doi.org/10.11648/j.ijfbr.20241005.11
AB  - This study investigates the effect of disaggregated capital expenditure on economic growth in Ethiopia over the period from 1981 to 2021. An autoregressive distributed lag (ARDL) model, combined with a Granger causality test, is used for the econometric analysis. The empirical results reveal that capital expenditure on economic development (CAEE), recurrent expenditure (RCE), and the inflation rate (CPI) have significant positive impacts on economic growth in both the long run and short run. However, capital expenditure on administrative and general development (CEAG) has a significant negative effect on economic growth in the long run. The Granger causality test further indicates unidirectional causality from economic growth (GNI) to capital expenditure on economic development (CAEE). Based on these findings, the study recommends that the Ministry of Finance should increase its budget allocations for capital expenditures aimed at economic development in order to further stimulate economic growth. Additionally, the government should implement stricter follow-up and monitoring mechanisms to ensure the proper management of budget allocations, particularly regarding capital expenditures on social development and administrative and general development. These measures are crucial for sustaining long-term economic growth in Ethiopia.
VL  - 10
IS  - 5
ER  -

Copy | Download