The Impact of Foreign Aid on Government Expenditure in Ethiopia

Scientific Study , 2014 , 73 Pages

Economics - Case Scenarios

This study has examined the impact of foreign aid on government expenditure in Ethiopia over the period 1981 to 2012 using Multivariate Vector Auto Regression analysis. All the necessary time series tests such as stationary test, co-integration, weak exiguity, and other tests are conducted. The empirical result from the long run fungibility equation result indicates that sectoral aid has negative effect on its sector spending in developmental sectors except for agricultural sector government spending. The estimate of agricultural aid also support that a 1percent increase in agricultural aid leads to a 0.83percent increase in agricultural spending. Aid other than health aid also has positive impact on health spending. The positive coefficient of aid other than the health implies that there is an aid diversion towards health sector from the others. The negative coefficients of sectoral aid on the sector spending and the negative coefficients of aid other than sector-specific aid, indicate diversion of aid away from the specific sector. Negative coefficients of explanatory variables may arise when there is a diversion of categorical aid from developmental investment towards non developmental expenditure such as general service government expenditures. The result also shows education aid is fungible both in short and long run. Health aid is fungible in the long run but not in the short run. Agriculture aid is non fungible in both long and short run in Ethiopia. The coefficient of aid other than education aid has positive sign that implies the diversion of foreign aid to the education sector. Foreign aid have also negative impact on all of non developmental government spending In order to get the desired benefit from foreign aid, Ministry of Finance and Economic Development has to set sound financial management system which stimulates economic growth and mitigate any diversion of developmental sector aid to other non developmental expenditure particularly in education and health sectors. Therefore, effective and efficient monitoring system which was purpose oriented utilization of foreign aid is central to make sectoral spending non fungible in Ethiopia.

Inhaltsverzeichnis (Table of Contents)

• CHAPTER ONE
• 1. INTRODUCTION
• 1.1. Background
• 1.2. Statement of the Problem
• 1.3. Objective of the Study
• 1.3.1. General Objectives
• 1.3.2. Specific Objectives
• 1.4. Research Questions
• 1.5. Significance of the Study
• 1.6. Scope of the Study
• 1.7. Limitation of the Study
• 1.8. Organization of the Paper
• CHAPTER TWO
• 2. METHODOLOGY OF THE STUDY
• 2.1. Data Type and Sources
• 2.2. Description of Variables
• 2.3. Model Specification
• 2.4. Econometric Estimation Techniques
• 2.4.1. Testing for Unit Root
• 2.4.2. Test for Cointegration
• 2.4.3 Vector Error Correction Model (VECM)
• CHAPTER THREE
• 3. ANALYSIS OF ECONOMIC PERFORMANCE IN ETHIOPIA
• 3.1. Aggregate Economic Growth in Ethiopia
• 3.2. Sectorial Economic Growth in Ethiopia
• 3.3. External Economic Sector and Its Financing
• 3.4. Government Expenditure and Means of Financing
• 3.5. Functional Classification of Capital Expenditure in Ethiopia
• 3.6. Classification of Current Expenditure in Ethiopia
• 3.7. Budget Deficit and Means of Financing in Ethiopia
• 3.8. Rate of ODA Flows to Ethiopia Relative to Economic Sectors
• 3.9. Composition of ODA Flows to Ethiopia
• CHAPTER FOUR
• 4. EMPIRICAL RESULTS AND INTERPRETATION
• 4.1. Results for Unit-Root Test
• 4.2. Result of Cointegration Analysis
• 4.2.1. Tests for Co-integration and Long-Run Relationships
• 4.2.2. Test Result for Short Run Expenditure Equation
• CHAPTER FIVE
• 5. SUMMARY, CONCLUSION AND POLICY IMPLICATION
• 5.1. Summary
• 5.2. Conclusion
• 6.3. Policy Implication

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This professional research investigates the impact of foreign aid on government expenditure in Ethiopia. The study analyzes the relationship between foreign aid and government expenditure in Ethiopia using time series data. The objectives of the research are to: * Assess the impact of foreign aid on government expenditure in Ethiopia. * Examine the relationship between foreign aid and various categories of government expenditure. * Determine the factors influencing the allocation of foreign aid to specific economic sectors. * Evaluate the effectiveness of foreign aid in promoting sustainable economic growth in Ethiopia. * Provide policy recommendations for optimizing the utilization of foreign aid in Ethiopia.

Zusammenfassung der Kapitel (Chapter Summaries)

• Chapter One: Introduction: This chapter provides an overview of the research topic, including background information on foreign aid and government expenditure in Ethiopia. It defines the problem, outlines the study's objectives, and identifies research questions. The significance and scope of the study are also addressed.
• Chapter Two: Methodology of the Study: This chapter describes the research methodology employed in the study. It details the data sources, variables used, and model specification. The chapter further discusses the econometric techniques used for data analysis, including testing for unit root, cointegration, and the Vector Error Correction Model (VECM).
• Chapter Three: Analysis of Economic Performance in Ethiopia: This chapter analyzes the economic performance of Ethiopia, focusing on aspects such as aggregate economic growth, sectorial economic growth, external economic sector financing, government expenditure, and budget deficits. It further examines the composition of ODA flows to Ethiopia and their allocation across different economic sectors.
• Chapter Four: Empirical Results and Interpretation: This chapter presents the empirical findings of the study, focusing on the unit-root test results, cointegration analysis, and the long-run and short-run relationships between foreign aid and government expenditure.
• Chapter Five: Summary, Conclusion, and Policy Implication: This chapter summarizes the main findings of the study, drawing conclusions about the impact of foreign aid on government expenditure in Ethiopia. It also provides policy implications for enhancing the effectiveness of foreign aid utilization and optimizing its impact on government expenditure and economic development in Ethiopia.

Schlüsselwörter (Keywords)

This research focuses on the analysis of foreign aid and its impact on government expenditure in Ethiopia. Key terms and concepts include foreign aid, government expenditure, economic growth, econometric analysis, unit root test, cointegration analysis, Vector Error Correction Model (VECM), and ODA flows. The research investigates the relationship between these factors and seeks to determine the impact of foreign aid on different categories of government expenditure, as well as its effectiveness in promoting sustainable economic development.

• College: Wollega University (Department of Economics)
• Author: Fikadu Goshu (Author)
• Publication Year: 2014
• Pages: 73
• Catalog Number: V286054
• ISBN (eBook): 9783656862703
• ISBN (Book): 9783656862710
• Language: English
• Tags: foreign aid, economic growth, fungibility, public expenditure, Ethiopia, government spending