The Effect Of Export Earning Fluctuation On Physical Capital Formation In Ethiopia

Physical capital plays a key role in determining economic development in a country. Based onrnthis fact, the main objective of this study was to investigate the effect of export earningrnfluctuation on physical capital formation in Ethiopia by employing data ranging from 1970171 torn2007/08 using time series technique.rnThe study used unit root and co integration tests to see the characteri stics of the data seri es. Inrnaddition, Vector Error Correction Model (VECM) was developed to investi gate the effect ofrnvariation of the explanatory variables in the short run on physical capital formation.rnThe finding of the study shows that expected level of output and aid affects the level of physicalrncapital formation in the country for the period of study positively and significantly.rnExport income fluctuation and real effective exchange rate, on the other hand, affects physicalrncapital formation negatively and signifi cantly.rnThe rate of gross domestic saving has positive short run implication on the rate of phys icalrncapital formation as iJld icated in the ShOl1 run dynamics during the entire period of study.

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