Investigating the Long-Run Sectoral Growth Linkages in Ethiopia: Is Agriculture or Service an Engine of Growth?

Seid Mohammed Yimer

doi:10.59573/emsj.7(4).2023.11

Authors

Seid Mohammed Yimer

DOI:

https://doi.org/10.59573/emsj.7(4).2023.11

Keywords:

growth, sectoral-linkage, Ethiopia

Abstract

This paper investigates the long run relationship between agriculture, industry and service using cointegrated vector autoregressive (CVAR) methodology for the period 1981-2011. Using this approach, the article provides a fresh evidence for Ethiopia that has not been deployed by the previous researches in the country. The paper finds that service is a driving force of the growth of agriculture and itself, an evidence obtained from analysis of the long run impact matrix C. From the fully identified long run structure, growth in service has positive and significant impacts on agriculture and industry. It deeply investigates the effects on agriculture by disaggregating service into other service and distributive service whereas industry comprises manufacturing and non-manufacturing. Concerning the impacts of disaggregated service, other service sub-sector is found to be a pushing force for the growth of agriculture, non-manufacturing and service itself. A variable comprising transportation and communication is vital for the long term growth of agriculture. These results are robust to changes in sample size and sample source. The policy prescription is that government should invest on this small sub-sector as the returns to the whole economy are tremendous.

The paper finds positive and strong effects from non-manufacturing to manufacturing reflecting that improved access to electricity, gas and water triggers unprecedented growth in manufacturing productivity. Finally, a shock to agriculture has little impacts on the growth of entire economy as the variable is purely adjusting in most of the models considered in the paper while aggregate service is weakly exogenous.

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