Analysis of External Debt and Economic Growth in Ethiopia Economy

Olamo Oltisha; Abdi Alemayehu

doi:doi:10.11648/j.ri.20250101.17

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Analysis of External Debt and Economic Growth in Ethiopia Economy

Olamo Oltisha, Abdi Alemayehu^*

Published in Research and Innovation (Volume 1, Issue 1)

Received: 26 October 2025 Accepted: 8 November 2025 Published: 17 December 2025

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Abstract

Economic growth speculations suggest that reasonable levels of borrowing by countries are likely to enhance its economic growth. Hence, countries at early stages of development have small stocks of capital and are unlikely to have investment opportunities with rates of return higher than those in advanced economies. This paper intended to analyse external debt and economic growth nexus in Ethiopia by using annual time series data over the period of 1990-2022. To meet it objective the study employed Autoregressive Distributed Lag (ARDL). The empirical result revealed that there is the existence of long run relationship between external debt and Economic Growth in Ethiopia and reveals that external debts stock contribute negatively to the economic growth of Ethiopia. Thus, the evidence in this study also revealed that in the long run external debt and human capital have negative and significant effect on economic growth, wile, external debt service and gross fixed capital formations has significant positive and effects on growth (real GDP) in Ethiopia. In addition, the Granger (1969) procedure of causality test result reveled that there is unidirectional causality between external debt and growth, with the causality from economic growth to external debt. In addition, in the short run effect, there is 67 percentage adjustment taking place at each year towards the long run periods. The study recommends that government of Ethiopia should create conducive environment that helps to mobilize domestic resource for developmental projects rather than to rely on borrowing of external finance only for productive and value adding projects. One of the major concern, in order to improve Ethiopia’s economic growth, is to adopt policies which will permit favorable internal productive projects includes the lowering corruption, respect rule of law, government effectiveness, legal voice and accountability, regulatory quality and political stability should be encouraged.

Published in	Research and Innovation (Volume 1, Issue 1)
DOI	10.11648/j.ri.20250101.17
Page(s)	45-55
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2025. Published by Science Publishing Group

Keywords

External Debt, External Debt Servicing, ARDL and Real GDP

References

[1]	Alemayehu, B. T. (2021). Determinant of Trade Balance in Ethiopia: Approaches from Autoregres sive Distributive Lag (ARDL) Model. Journal of World Economic Research, 10(2), 62-73. https://doi.org/10.11648/j.jwer.20211002.14
[2]	Amsalu Dachito Chigeto (2017). External Debt-Economic Growth Nexus in Developing Countries: Evidence from Ethiopia. International Journal of African and Asian Studies, Vol. 40, 66-81.
[3]	Aybarç, S. (2019). Theory of Public Debt and Current Reflections. Public Economics and Finance DOI: http://dx.doi.org/10.5772/intechopen.82730 (pp. 1-11).
[4]	Berhanu Getinet and Fikadu Ersumo (2020). The Impact of Public External Debt on Economic Growth in Ethiopia: The ARDL Approach to Co-integration. Journal of Economics and Sustainable Development, Vol. 11, No. 11, 25-39. https://doi.org/10.7176/JESD/11-11-03
[5]	Chala Amante Abate (2023) The nexus of public debt and economic growth in Ethiopia: Is it symmetric?, Cogent Economics & Finance, 11: 2, 2231226, https://doi.org/10.1080/23322039.2023.2231226
[6]	Festus Olatunbode, Adegbemi Onakoya, Rowland Tochukwu and Esther Omotola (2023). Public Debt, Institutional Quality and Economic Growth: Evidence from Nigeria. Journal of Economics and Allied Research, 8(1), 93-107: https://www.researchgate.net/publication/377108628
[7]	Gachunga, M. J. (2018). The Impact of External Debt on Economic Growth in Sub-Saharan Africa. Academic Journal of Economic Studies, 4, 57–63. https://www.researchgate.net/publication/333582730
[8]	Garedew Aweke Gizaw and Taddele Ferede (2020). Effect of Public External Debt on Economic Growth in Ethiopia. Journal of Economics and Sustainable Development, Vol. 10, No. 13, 33-43. https://doi.org/10.7176/JESD/10-13-04
[9]	Melkamu Welde Geleta. Public Debt and Economic Growth in Sub-saharan African Countries: A Panel Data Analysis. Economics. Vol. 10, No. 3, 2021, pp. 68-78. https://doi.org/10.11648/j.eco.20211003.11
[10]	Mohammed, E. A. (2022). The Impact of Public External Debt on Economic Growth of Ethiopoia. International Journal of Advanced Research and Publications, 5(5), 114-125.
[11]	Mohanty, D. A. (2017). External Debt And Economic Growth In Ethiopia; A Time Series Econometrics. International Journal of Research in Social Sciences, 7(10), 574-602.
[12]	Nechirwan Burhan Ismael, Shamal Hasan Obaid Mahmod, Hariwan Subhi Khorsheed (2024). External Debt and Economic Growth: Empirical Evidence from Developing Countries. International Journal of Engineering, Business and Management (IJEBM) Vol-8, Issue-3, https://dx.doi.org/10.22161/ijebm.8.3
[13]	Solomon Kebede, Getachew Zerihun, Kuma Berhanu & Tora Abebe (2023) The role of foreign public debt on foreign exchange reserve in SSA countries: Does governance really matters?, Cogent Economics & Finance, 11: 2, 2223810, https://doi.org/10.1080/23322039.2023.2223810
[14]	Sylvester Bob Hadji (2022). External Debt-Economic Growth Nexus: The Sierra Leonean Case (1973-2021). International Journal of Economics, Finance and Management Sciences. Vol. 10, No. 2, pp. 54-66. https://doi.org/10.11648/j.ijefm.20221002.13
[15]	Udoh, E. a. (2012). Financial Sector Development and Industrial Production in Nigeria, An ARDL Cointegration Approach. Journal of Applied Finance & Banking (Vol. 2).
[16]	Wondatir Atinafu, (2020). External debt-growth nexus: Empirical evidence from Ethiopian economy. Economics, Management and Sustainability, 5(2), 6-27. https://doi.org/10.14254/jems.2020.5-2.1

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APA Style

Oltisha, O., Alemayehu, A. (2025). Analysis of External Debt and Economic Growth in Ethiopia Economy. Research and Innovation, 1(1), 45-55. https://doi.org/10.11648/j.ri.20250101.17

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ACS Style

Oltisha, O.; Alemayehu, A. Analysis of External Debt and Economic Growth in Ethiopia Economy. Res. Innovation 2025, 1(1), 45-55. doi: 10.11648/j.ri.20250101.17

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AMA Style

Oltisha O, Alemayehu A. Analysis of External Debt and Economic Growth in Ethiopia Economy. Res Innovation. 2025;1(1):45-55. doi: 10.11648/j.ri.20250101.17

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@article{10.11648/j.ri.20250101.17,
  author = {Olamo Oltisha and Abdi Alemayehu},
  title = {Analysis of External Debt and Economic Growth in Ethiopia Economy},
  journal = {Research and Innovation},
  volume = {1},
  number = {1},
  pages = {45-55},
  doi = {10.11648/j.ri.20250101.17},
  url = {https://doi.org/10.11648/j.ri.20250101.17},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ri.20250101.17},
  abstract = {Economic growth speculations suggest that reasonable levels of borrowing by countries are likely to enhance its economic growth. Hence, countries at early stages of development have small stocks of capital and are unlikely to have investment opportunities with rates of return higher than those in advanced economies. This paper intended to analyse external debt and economic growth nexus in Ethiopia by using annual time series data over the period of 1990-2022. To meet it objective the study employed Autoregressive Distributed Lag (ARDL). The empirical result revealed that there is the existence of long run relationship between external debt and Economic Growth in Ethiopia and reveals that external debts stock contribute negatively to the economic growth of Ethiopia. Thus, the evidence in this study also revealed that in the long run external debt and human capital have negative and significant effect on economic growth, wile, external debt service and gross fixed capital formations has significant positive and effects on growth (real GDP) in Ethiopia. In addition, the Granger (1969) procedure of causality test result reveled that there is unidirectional causality between external debt and growth, with the causality from economic growth to external debt. In addition, in the short run effect, there is 67 percentage adjustment taking place at each year towards the long run periods. The study recommends that government of Ethiopia should create conducive environment that helps to mobilize domestic resource for developmental projects rather than to rely on borrowing of external finance only for productive and value adding projects. One of the major concern, in order to improve Ethiopia’s economic growth, is to adopt policies which will permit favorable internal productive projects includes the lowering corruption, respect rule of law, government effectiveness, legal voice and accountability, regulatory quality and political stability should be encouraged.},
 year = {2025}
}

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TY  - JOUR
T1  - Analysis of External Debt and Economic Growth in Ethiopia Economy
AU  - Olamo Oltisha
AU  - Abdi Alemayehu
Y1  - 2025/12/17
PY  - 2025
N1  - https://doi.org/10.11648/j.ri.20250101.17
DO  - 10.11648/j.ri.20250101.17
T2  - Research and Innovation
JF  - Research and Innovation
JO  - Research and Innovation
SP  - 45
EP  - 55
PB  - Science Publishing Group
UR  - https://doi.org/10.11648/j.ri.20250101.17
AB  - Economic growth speculations suggest that reasonable levels of borrowing by countries are likely to enhance its economic growth. Hence, countries at early stages of development have small stocks of capital and are unlikely to have investment opportunities with rates of return higher than those in advanced economies. This paper intended to analyse external debt and economic growth nexus in Ethiopia by using annual time series data over the period of 1990-2022. To meet it objective the study employed Autoregressive Distributed Lag (ARDL). The empirical result revealed that there is the existence of long run relationship between external debt and Economic Growth in Ethiopia and reveals that external debts stock contribute negatively to the economic growth of Ethiopia. Thus, the evidence in this study also revealed that in the long run external debt and human capital have negative and significant effect on economic growth, wile, external debt service and gross fixed capital formations has significant positive and effects on growth (real GDP) in Ethiopia. In addition, the Granger (1969) procedure of causality test result reveled that there is unidirectional causality between external debt and growth, with the causality from economic growth to external debt. In addition, in the short run effect, there is 67 percentage adjustment taking place at each year towards the long run periods. The study recommends that government of Ethiopia should create conducive environment that helps to mobilize domestic resource for developmental projects rather than to rely on borrowing of external finance only for productive and value adding projects. One of the major concern, in order to improve Ethiopia’s economic growth, is to adopt policies which will permit favorable internal productive projects includes the lowering corruption, respect rule of law, government effectiveness, legal voice and accountability, regulatory quality and political stability should be encouraged.
VL  - 1
IS  - 1
ER  -

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Author Information

Olamo Oltisha

Department of Economics, Ethiopian Catholic Church-Social and Development Commission Coordination Office of Soddo, Omorate, Ethiopia

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Abdi Alemayehu

Department of Economics, Jinka University, Jinka, Ethiopia

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APA Style

Oltisha, O., Alemayehu, A. (2025). Analysis of External Debt and Economic Growth in Ethiopia Economy. Research and Innovation, 1(1), 45-55. https://doi.org/10.11648/j.ri.20250101.17

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ACS Style

Oltisha, O.; Alemayehu, A. Analysis of External Debt and Economic Growth in Ethiopia Economy. Res. Innovation 2025, 1(1), 45-55. doi: 10.11648/j.ri.20250101.17

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AMA Style

Oltisha O, Alemayehu A. Analysis of External Debt and Economic Growth in Ethiopia Economy. Res Innovation. 2025;1(1):45-55. doi: 10.11648/j.ri.20250101.17

Copy | Download

@article{10.11648/j.ri.20250101.17,
  author = {Olamo Oltisha and Abdi Alemayehu},
  title = {Analysis of External Debt and Economic Growth in Ethiopia Economy},
  journal = {Research and Innovation},
  volume = {1},
  number = {1},
  pages = {45-55},
  doi = {10.11648/j.ri.20250101.17},
  url = {https://doi.org/10.11648/j.ri.20250101.17},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ri.20250101.17},
  abstract = {Economic growth speculations suggest that reasonable levels of borrowing by countries are likely to enhance its economic growth. Hence, countries at early stages of development have small stocks of capital and are unlikely to have investment opportunities with rates of return higher than those in advanced economies. This paper intended to analyse external debt and economic growth nexus in Ethiopia by using annual time series data over the period of 1990-2022. To meet it objective the study employed Autoregressive Distributed Lag (ARDL). The empirical result revealed that there is the existence of long run relationship between external debt and Economic Growth in Ethiopia and reveals that external debts stock contribute negatively to the economic growth of Ethiopia. Thus, the evidence in this study also revealed that in the long run external debt and human capital have negative and significant effect on economic growth, wile, external debt service and gross fixed capital formations has significant positive and effects on growth (real GDP) in Ethiopia. In addition, the Granger (1969) procedure of causality test result reveled that there is unidirectional causality between external debt and growth, with the causality from economic growth to external debt. In addition, in the short run effect, there is 67 percentage adjustment taking place at each year towards the long run periods. The study recommends that government of Ethiopia should create conducive environment that helps to mobilize domestic resource for developmental projects rather than to rely on borrowing of external finance only for productive and value adding projects. One of the major concern, in order to improve Ethiopia’s economic growth, is to adopt policies which will permit favorable internal productive projects includes the lowering corruption, respect rule of law, government effectiveness, legal voice and accountability, regulatory quality and political stability should be encouraged.},
 year = {2025}
}

Copy | Download

TY  - JOUR
T1  - Analysis of External Debt and Economic Growth in Ethiopia Economy
AU  - Olamo Oltisha
AU  - Abdi Alemayehu
Y1  - 2025/12/17
PY  - 2025
N1  - https://doi.org/10.11648/j.ri.20250101.17
DO  - 10.11648/j.ri.20250101.17
T2  - Research and Innovation
JF  - Research and Innovation
JO  - Research and Innovation
SP  - 45
EP  - 55
PB  - Science Publishing Group
UR  - https://doi.org/10.11648/j.ri.20250101.17
AB  - Economic growth speculations suggest that reasonable levels of borrowing by countries are likely to enhance its economic growth. Hence, countries at early stages of development have small stocks of capital and are unlikely to have investment opportunities with rates of return higher than those in advanced economies. This paper intended to analyse external debt and economic growth nexus in Ethiopia by using annual time series data over the period of 1990-2022. To meet it objective the study employed Autoregressive Distributed Lag (ARDL). The empirical result revealed that there is the existence of long run relationship between external debt and Economic Growth in Ethiopia and reveals that external debts stock contribute negatively to the economic growth of Ethiopia. Thus, the evidence in this study also revealed that in the long run external debt and human capital have negative and significant effect on economic growth, wile, external debt service and gross fixed capital formations has significant positive and effects on growth (real GDP) in Ethiopia. In addition, the Granger (1969) procedure of causality test result reveled that there is unidirectional causality between external debt and growth, with the causality from economic growth to external debt. In addition, in the short run effect, there is 67 percentage adjustment taking place at each year towards the long run periods. The study recommends that government of Ethiopia should create conducive environment that helps to mobilize domestic resource for developmental projects rather than to rely on borrowing of external finance only for productive and value adding projects. One of the major concern, in order to improve Ethiopia’s economic growth, is to adopt policies which will permit favorable internal productive projects includes the lowering corruption, respect rule of law, government effectiveness, legal voice and accountability, regulatory quality and political stability should be encouraged.
VL  - 1
IS  - 1
ER  -

Copy | Download