THE CAUSAL RELATIONSHIP BETWEEN EXPORT AND ECONOMIC GROWTH: THE CASE OF ETHIOPIA

Abstract

The thesis examines the causal relationship between export and economic growth paradigm for Ethiopia, using time series data from 1981 to 2011. The paper employs a variety of analytical tools, including unit root tests, cointegration analysis, Granger causality tests, error correction model coupled with vector auto regression (VAR). The thesis sets four hypotheses for testing the causalrelationship between export and economic growth of Ethiopia. (i) whether GDP and exports are cointegrated, (ii)whether exports Granger cause growth, or (iii) whether growth Granger cause export and finally whether there is no causality relationship between the two variables. The thesis fails to reject the first two hypotheses, while it fails to accept the hypothesis that growth (GDP) Granger causes Export. That is the causality relationship is unidirectional and it goes from export to economic growth.