The link between Economic Growth, Exports and Imports in Ethiopia: A Vector Auto Regressive Analysis

Abstract The relationship between exports, imports andeconomic growth of Ethiopia has been investigated in this paper for the period 1981-2018 by using annual data from World Bank. For the analysis,Vector Auto Regressive Model, Johansen co-integration analysis and the GrangerCausality tests were implemented. The outcome of the analysis reveals that there is no cointegration relation between exports, imports and economic growth inEthiopia. Conversely, we found that there is a strong evidence of bidirectional causality between exports andeconomic growth and a unidirectional causality from export to import. There is also a causality running from import to exports at a 10% significance level that witnessed weak bidirectional causality between imports and exports. This shed light on the importance of giving more emphasis on export-led growth by Ethiopian policy decision makers.