Ethiopia?S Growth Acceleration and How to Sustain It?Insights from a Cross-Country Regression Model

41 Pages Posted: 20 Apr 2016

See all articles by Lars Christian Moller

Lars Christian Moller

World Bank

Konstantin M. Wacker

University of Groningen - Faculty of Economics and Business

Date Written: June 8, 2015

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.

Keywords: Pro-Poor Growth, Economic Theory & Research, Debt Markets, Emerging Markets, Environmental Economics & Policies

Suggested Citation

Moller, Lars Christian and Wacker, Konstantin M., Ethiopia?S Growth Acceleration and How to Sustain It?Insights from a Cross-Country Regression Model (June 8, 2015). World Bank Policy Research Working Paper No. 7292, Available at SSRN: https://ssrn.com/abstract=2616063

Lars Christian Moller

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Konstantin M. Wacker (Contact Author)

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

HOME PAGE: http://sites.google.com/rug.nl/kmwacker

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