Impact Of Macroeconomic Instability On Economic Growth And Private Capital Accumulation In Ethiopia

Analyzing impact of macroeconomic instability on economic growth and private capitalrnaccumulation from the year 1974 to 2013 is the main objective of the study. Rather than usingrnone variable as a proxy for macroeconomic instability, the researcher attempts to calculaternmacroeconomic instability index by using four variables: budget deficit, public debt, exchangernrate variability and inflation by utilizing UNDP HDI methodology. In specification of regressionrnequations, endogenous growth model and accelerator model are used for growth and capitalrnaccumulation equation respectively. Empirical analysis has been performed by using Johanssonrnmaximum likelihood method, the result shows that there is a long run relationship among thernvariables entered in both models. Both the long run and short run result shows that,rnmacroeconomic instability has a detrimental effect on both economic growth and private capitalrnaccumulation. Based on the finding, the major policy implication of this study is that, poorrnmanagement of macroeconomic with the adoption of incorrect and illogical fiscal and monetaryrnpolicies and passive reaction against shocks will intensify the macroeconomic instability. Due tornthis, the way of reaction to the shocks is very important

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