2025/07/28 by Tesfahun Ayanaw, Godadaw, Samuel, Yigermal Maru +2
paper · doi:10.20372/nadre:13424
This paper aimed to examine the empirical analysis of currency devaluation, external<br> debt to GDP growth rate and output growth dynamics in Ethiopia. To achieve this<br> objective, time series data covering from 1991 to 2022 was used and it was examined<br> using an Auto Regressive Distributed Lag (ARDL) model. The estimation results show<br> that devaluation, the external debt-to-GDP growth rate, and economic growth are all<br> significantly correlated and are co-integrated in the long run. This study found that<br> devaluation has positive long-run effect on output growth, while the external debt-to-<br> GDP growth rate has negative long-run effects on output growth. In addition, the<br> results revealed that inflation had positive effects on economic growth both in the<br> short and long run, while, private investment had negative effects on economic growth<br> both in the short and long run respectively. In general, the study found that there is<br> no short-run connection between devaluation, the external debt-to-GDP growth rate,<br> and economic growth; nevertheless, in the long run, devaluation lowers external debt<br> by boosting exports and promoting economic growth. Additionally, long-run economic<br> growth in the country is positively impacted by spending on education and the<br> availability of real money supply. This study suggests that the government should<br> improve economic growth by enhancing allocation for education to improve its quality,<br> control inflation and money supply, and promoting devaluation to check their effects<br> on the economy.