Service Sector Growth, Public External Debt and Economic Growth: A Relook in to the Experience of Ethiopia
Ethiopia is experiencing a robust economic growth in recent times which is mainly due to the expansion in service sector though; agriculture is its mainstay in terms of employment and export earnings. During this time, Ethiopia has also experienced rising external debt mainly of public sector. Several studies have appeared in recent times on the negative impact of growing debt on economic growth. This paper is an attempt to relook into the relationship of external debt and economic growth in Ethiopia. It traces out the effect of service sector growth, agricultural growth along with public sector external debt on economic growth using time series methods. For this purpose the study employed ARDL co-integration technique and the error correction model for investigating long run as well as short run relationship among these variables for the study period 1981-2012. The empirical evidence suggests that service sector growth and agricultural sector growth have contributed positively to the economic growth of Ethiopia. Contrary to the apprehensions about public external debt, it does not have significant influence on economic growth. In view of these findings it is suggested that Ethiopia should continue with the existing agricultural and service sector policies and need not excessively worry with its growing foreign debt.
Service Sector, Agriculture, External Debt, GDP, Cointegration, Error Correction, ARDL Model
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