Impacts of foreign aid on economic growth of Ethiopia

Over the period 1981 to 2018, this study examines experimentally the link between foreign direct investments, external debt, and foreign aid to Ethiopia's economic growth. Econometric techniques can be improved by employing basic correlation and deterministic models. Ordinary Least Squares were used to create a model and evaluate the data. The data's unit root was tested for all variables, and the variables were non-stationary in the level model but stationary in the first-difference model. The results of the cointegration test suggested that there is at least one cointegrated vector between the examined variables, while the VAR Granger causality test showed that there is a unidirectional causal relationship between foreign aid and economic growth and also there is a unidirectional causal relationship between foreign direct investments and economic growth, while external debt and economic growth have a bidirectional causal relationship among them. The two explanatory variables of external debt and foreign aid were statistically significant for economic growth, while only the explanatory variable of foreign direct investment was statistically insignificant for economic growth.