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Macroeconomic determinants of total factor productivity and its trend in Ethiopia

Author

Listed:
  • Adisu Abebaw Degu

    (Salale University, Department of Economics, Fiche, Ethiopia)

  • Dagim Tadesse Bekele

    (Salale University, Department of Economics, Fiche, Ethiopia)

Abstract

Total factor productivity (TFP) as a source of economic growth, has been recognized in economic theory for a long period of time. In this research we tried to examine the effect of some macroeconomic factors, which include trade openness, inflation, government expenditure, credit extended and foreign direct investment, and natural disaster drought on total factor productivity and its trend in Ethiopia by using Time series data spanning from 1991 to 2018. The TFP was computed by using the growth accounting method from Cobb–Douglas production function. ARDL was used for estimation of the short and long run econometric model. Accordingly, the trend analysis shows the growth in TFP has been fluctuating over the study period. The result from ARDL indicated that; in long run foreign direct investment, government expenditure and drought negatively and significantly affect TFP. Credit extended is found to affect TFP positively and significantly, while inflation and trade openness are insignificant. Therefore, policies such as; subsidizing domestic firms, effective government spending and making the agriculture sector drought resistant need to be stimulated. Key Words:Effect, Macroeconomic Variables, Drought, Total Factor Productivity, ARDL, Ethiopia

Suggested Citation

  • Adisu Abebaw Degu & Dagim Tadesse Bekele, 2019. "Macroeconomic determinants of total factor productivity and its trend in Ethiopia," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 8(6), pages 219-228, October.
    • Handle: RePEc:rbs:ijbrss:v:8:y:2019:i:6:p:219-228
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    Citations

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    Cited by:

    1. Gollagari Ramakrishna & Berhanu Asefa Gizaw & Ch. Paramaiah & Robinson Joseph & Sania Khan, 2023. "Import Tariff Reduction and Fiscal Sustainability: A Macro-Econometric Modelling for Ethiopia," Sustainability, MDPI, vol. 15(4), pages 1-18, February.
    2. Khumbuzile C. Mosoma & Renee van Eyden & Heinrich R. Bohlmann, 2023. "Measuring Total Factor Productivity in the South African Agricultural Sector Using a Growth Accounting Framework," Working Papers 202306, University of Pretoria, Department of Economics.

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