The Effect of Remittances on Economic Growth in Ethiopia: A Time Series Analysis (1980/81-2017/18)

For more than half a century, regardless of its increasing importance, the effect of remittances on economic growth has not adequately studied. In this study the empirical relationship between economic growth and remittances was investigated by using an ARDL bound approach to cointegration in Ethiopia during the period 1980/81-2017/18. According to the findings of this paper the estimated coefficients of the level of remittance inflows were found to influence the economic growth positively and significantly both in the long run and short run. Moreover in order to confirm the relationship and the impact of remittances inflows on economic growth co-integration and causality tests were conducted on the macroeconomic variables data collected. The outcome of co-integration test showed that there is a long-run equilibrium relationship between real GDP, remittance inflows, human capital, labor force, rate of inflation, gross capital formation and national saving. The result of causality test also shows that there is a unidirectional causality running from remittance inflows to GDP.