THE IMPACT OF FOREIGN AID ON AGRICALTURAL GROWTH IN ETHIOPIA A TIME SERIES ANALYSIS

Abstract

The study has empirically examined the impact of foreign aid on Agricultural growth in Ethiopia over the period 1974/75 to 2015/16 using time series analysis. The main hypothesis of the study is that foreign aid has an impact on agricultural growth of Ethiopia. To test this hypothesis an empirical model is estimated using Johansen integration test and Vector Error Correction model (VECM) as the estimation techniques to estimate the long run and short run relationship. The empirical result from the statistical analysis shows that foreign aid has negative insignificant impact on agricultural growth in the long run and also arable land, capital investment, labor and government expenditure on agriculture sector have positive significant impact on agricultural growth in the long run. The result of the study reveals that foreign aid which is directly given to agricultural sector for agricultural growth has a long-run relationship according to the Johansen integration test. The most important policy implication of the result is that arable land capital investment labor and government expenditure is crucial to increase agricultural growth of Ethiopia both in both long run and short run than encourage direct foreign aid in agricultural sector.