Ethiopian Journal of Economics

Can Ethiopia Reach a Lower-Middle-Income Status by 2025? A Framework of DSGE and VAR Models

2024-02-23T14:19:26+00:00

Ethiopia has set the goal to be one of the Lower-Middle-Income (LMI) economies in the world by 2025. With that the target is to reach a GDP range of 147.5 to 578.4 bl. US$ and a GDP per capita range of 1,137 to 4,458 US$ by 2025. The present study asks whether Ethiopia is likely to reach these targets or not if the trends, dynamics, and volatility that have been experienced during the last decades persist. The out-of-sample forecast was analyzed using DSGE and VAR models, and the data set used in this study underwent a structural break test. Based on 1990-2018 data, the Nominal GDP of the Ethiopian economy is predicted to be 130.86 bl. US$ by the VAR model and 131.52 bl. US$ by the DSGE model in 2025. The 2004-2018 data gives a higher and above LMI margin predicted value of 164.84 bl. US$ and 169.69 bl. US$ for the VAR and DSGE models, respectively. Using the 2004-2018 data, the 2025 Nominal GDP in US$ is forecasted to be more than 164 bl, and the GDP per capita between 923 to 1,123 US$. Even though Ethiopia may surpass the target set in terms of Nominal GDP and come close to the GDP per capita target, still a lot necessity be done to make the goal of reaching the LMI status credible. Therefore, structural, financial and economic reforms, infrastructural investments and nurturing macro-economic balance, are among the policy measures that need to be taken to achieve a resilient LMI status by 2025.

Agricultural Transformation Performance and Inter-Sectoral Linkages in Ethiopia

2024-02-23T14:24:20+00:00

The motivation for agricultural transformation is basically linked with structural relationships among sectors of the economy; transforming one sector cannot be successful without the corresponding transformation of the other. Therefore, this study assessed the performance of agricultural transformation and analyzed the linkage between agricultural and other sectors of the economy in Ethiopia using time-series data retrieved from the World Bank (WB) and FAOSTAT databases (1981-2019). The study employed trend analysis and the Vector Error Correction Model (VECM) which incorporated inter-sectoral linkages in the Ethiopian economy. In the trend analysis, though positive changes have been observed, agricultural transformation did not achieve the intended outcomes in terms of sustainability, productivity technical change, food self-sufficiency, and expansion of agro-industries, which calls government attention to a swift shift to market-oriented commercial farming involving mechanization. The model result illustrates how the linkages across different sectors vary in the short-run and long-run. In the short-run, the industrial sector has a negative effect on the performance of the agricultural sector, whereas the agricultural sector in turn affects the value added in the industrial sector positively. In the longrun, there was exhibited a positive and significant linkage between industrial and agricultural sectors. Thus, it needs to strengthen the effective use and adoption of new agricultural technologies in Ethiopia due to the existing negative short-run
agriculture-industry relationship. The macroeconomic policy should also take into account the possible long-run interdependencies between agriculture and other sectors of the economy by giving emphasis to the problem of transferring resources from agriculture to other sectors and vice versa.

Dairy Enterprises' Market Participation Decisions and the Level of Value Addition: Evidence from Addis Ababa and Its Vicinity, Ethiopia

2024-02-23T14:30:51+00:00

Ethiopia has ample potential and suitable agro-ecological conditions to establish dairy enterprises, and the enterprises contribute significantly to the economic, environmental, and quality-of-life, and well-being of individuals. Rapid urbanisation, rising income, and relatively high dairy product consumption per capita in the study area contribute to the sector's latent potential. However, little is being done to enhance the value addition of the milk production chain which in turn enhances value-added output. The attributes that influence dairy enterprises' decisions to penetrate the market and the degree of milk product value addition were examined in this study. A sample of 212 dairy enterprises was drawn from the study area's target population. The stated objectives have been achieved using both descriptive statistics and the Double-Hurdle econometrics model. The number of dairy cattle was a more significant factor in deciding whether to participate in the value addition of dairy products. Findings show that variables of interest in machinery and equipment, the volume of milk in the litter, access to credit services, and skills training had a positive and significant influence on the decision and the degree of value addition in the dairy production. The study also indicated that increasing milk volume, minimising the bureaucracy of credit service provision, and fostering low-cost technology and equipment innovation are vital to the success of a dairy enterprise. The study found that dairy enterprises stimulate substantial and diverse milk value additions.

Private Sector Development in Ethiopia

2024-02-23T14:36:23+00:00

The role of the private sector in driving sustainable and inclusive growth, poverty reduction, and creating jobs is indispensable. In order to effectively use the opportunities available for sustainable development and transformation of the Ethiopian economy and to further leverage the private sector, it is important to examine the structure and performance of private sector development, identify important bottlenecks and challenges, and further investigate its contribution to the economy. A time series Autoregressive Distributed Lag (ARDL) model was employed using secondary data collected from various official sources from 1991 to mid-2021. The result shows that in response to successive policies and strategies, an increment trend in private sector investment project was observed from 2003 onwards. However, the majority of the investment has been carried out by domestic investors. The implementation rate of projects in all development plan periods has been very low and showed a decline in agriculture sector investment from 2000 onward. Although promising signals indicate that the industry sector has begun to emerge over the last few years, with less participation of domestic private investors in the manufacturing sub-sector and no or little agriculture sector investment, this indicates a less nascent structural change to the productive sector of the economy. The result further shows domestic private sector investment has not yet been channelled into the productive sector and export market, which has a trickle-down effect towards industrialization and structural transformation of the economy and plays a less satisfactory role in employment generation, export, and economic growth of the country. The ARDL model revealed that the real effective exchange rate and credit have positive and significant effects both in the short and long runs. On the other hand, government expenditure and real interest rate were found to be positive and significant only in the long run. The results suggest that macroeconomic policies should be aligned with country’s the comparative advantage. To this end, encouraging a high-value export-led manufacturing sector and thereby strengthening Ethiopia's overseas purchasing power (improving the negative real effective exchange rate), undertaking government expenditure on capital investment (such as preferably on physical infrastructure and the development of industrial parks), and providing adequate financial services will leverage private sector investment in Ethiopia.

Impact of Nutrition-Sensitive Agriculture on Rural Women Welfare: A quasi-experimental design

2024-02-23T14:43:58+00:00

Women's welfare, defined as a state of being happy, healthy and prosperous which can be measured in terms of food and non-food consumption, is a top development target in Ethiopia. Various initiatives are being carried out to promote women's welfare, including nutrition-sensitive agriculture (NSA) interventions. The nutritionsensitive agriculture interventions are being undertaken in the country’s most vulnerable area. The study examined the impact of NSA interventions on the welfare of rural women. A multi-stage sampling technique was employed to select 94 participant and 166 non-participant women, for a total of 260 representative households. The study employed descriptive statistics as well as the propensity score matching (PSM) approach to attain its stated objective. The study's findings indicated that the intervention had a significant and positive influence on women's welfare. Thus, the sustained and wider dissemination of the nutrition-sensitive agricultural intervention would require building the capacity of key actors and institutionalizing the scheme in the regular, publicly supported extension program.