Relation of government expenditure with economic growth and poverty reduction in Ethiopian -ARDL analysis

This study examines the relation of government expenditure with economic growth and poverty reduction in Ethiopia using time series data over the period 1980 to 2013. Employing modern time series econometric techniques such as unit root tests, bound test co-integration approach and error correction techniques within an ARDL framework which yields more robust estimates. It is found that government spending affect economic growth positively and significantly by increasing real private investment and fixed capital accumulation which increase capital accumulation, reduction in current account deficit, external debt burden and improve education/skills of the households by improving human capital. Findings emerge from this study that government expenditure has significant short run impact on poverty reductions in its lag form in which it might be examined by the role of fiscal policy in alleviating poverty of current year in Ethiopia. The study suggested policies that the role of government should be extended to ensure the magnitude and the quality of private investment as high as possible.