The Impact of Population Growth on Economic Growth: Evidence from Ethiopia

Abstract

Population growth and economic growth are highly interrelated since they affect each other. This paper examines the impact of population growth on economic growth in Ethiopia using annual time series data from 1980/81-2016/17. Results from unit root test shows that the series under consideration contains a mixture of stationary variables at level (I (0)) and stationary at first difference (I(1)) implying that the model to be followed must be Autoregressive Distributed Lag model and the diagnostic tests executed on the model shows that the model is correctly specified having normally distributed residual as well there is no evidence of autocorrelation and heteroskedasticity. Result from Autoregressive Distributed Lag model or Bounds testing indicates that there exists a sustainable long-run relationship (co-integration) between population growth and Economic growth. The coefficient of the estimated error correction term is found to be - 0.931244 and highly significant further confirming the existence of long run relationship and implying that it only takes one year and about a month for the short run disequilibrium to adjust towards the long run equilibrium. The empirical model reveals that population growth has significant positive impact on the economic growth both in the short-run and long-run. Moreover, Toda-Yamamoto and Dolado-Lutkepohi as well as Innovative Accounting Techniques approach to Granger causality analysis shows that there exist bidirectional causality between population growth and economic growth which is witnessed to be strong by impulse responses and variance decompositions. The implication of the findings is that population is an asset rather than a burden for Ethiopia, and therefore a carefully planned population expansion along with sustainable economic growth, better employment opportunities and expanded quality education given the equality and justice in social, political and economic spheres would drive the economic growth and development in the country.