EFFECT OF CORRUPTION AND PUBLIC EXTERNAL DEBT ON ECONOMIC GROWTH IN ETHIOPIA: AN ARDL APPROACH

Abstract

This study aimed to analyze effect of corruption and public external debt on economic growth in Ethiopia based on secondary data from pertinent sources, to be estimated from 2000-2019. Hence, to achieve its objective the researcher uses both descriptive and econometric method of data analysis. The study employs autoregressive distributed lag approach to co-integration and Error Correction Model so as to investigate the long-run and short run relationship between the dependent variable (real gross domestic product) and explanatory variables. The finding of autoregressive distributed lag bounds to co integration test concludes that the independent variables have a long run relationship with economic growth and co-integrated them. Error correction model also identifies a short run relationship. The result revealed that public external debt has positive and significant effect on economic growth, while corruption has negative and significance effect on economic growth in long run. This shows that public external debt used to import productive capital and to increase productivity through the provision of employment opportunities and adequate infrastructural to accelerate the speed of economic growth. But in short run unlike to corruption, public debt had a significant negative effect on economic growth and the speed of adjustment has value 66.3% and with negative sign, it indicates the rate of convergence towards long run equilibrium. Based on the finding of this study, it is feasible to recommend the government to strengthen anti- corruption measures and control its budget administration to regulate its external borrowed money and to increase economic growth.