Impact of Macroeconomic Instability on Economic Growth and Private capital Accumulation in Ethiopia (original) (raw)

Analyzing impact of macroeconomic instability on economic growth and private capital accumulation from the year 1974 to 2013 is the main objective of the study. Rather than using one variable as a proxy for macroeconomic instability, the researcher attempts to calculate macroeconomic instability index by using four variables: budget deficit, public debt, exchange rate variability and inflation by utilizing UNDP HDI methodology. In specification of regression equations, endogenous growth model and accelerator model are used for growth and capital accumulation equation respectively. Empirical analysis has been performed by using Johansson maximum likelihood method, the result shows that there is a long run relationship among the variables entered in both models. Both the long run and short run result shows that, macroeconomic instability has a detrimental effect on both economic growth and private capital accumulation. Based on the finding, the major policy implication of this study i...