The Effect of Sectoral Output Volatility on Economic Growth in Ethiopia

Adisu Abebaw Degu


This study examined the effect of sectoral output volatility on economic growth and the determinants of economic growth in the Ethiopian economy. The study used annual time series data spanning from 1981 to 2018 and included capital stock, working-age population, trade balance, and sectoral output volatility as an explanatory variable. Using the Exponential General Autoregressive Conditional Heteroscedasticity (EGARCH) and Autoregressive Distributed Lag (ARDL) cointegration test, the study found a long-run relationship between economic growth and economic growth explanatory variables. From the ARDL model, capital stock and trade balance (which has been negative throughout the study period) was found to have a positive and negative significant effect on the economic growth of Ethiopia, respectively. In the long-run, volatility of industrial and service sector output growth had a negative and statistically significant effect on the economic growth of Ethiopia. In recent years the role of agriculture in the Ethiopian economy, particularly in terms of contribution to the national GDP, has been declining—indicating the growing importance of service and industrial sectors. Therefore, smoothening and maintaining the positive sectoral output growth is advisable for the betterment of the economy. Besides, balancing the foreign trade and curbing unrestricted importation is recommended as long as economic growth is concerned.


Volatility, EGARCH, ARDL, Sectors output, Economic growth

Full Text:



Abubaker, R. (2015). The asymmetric impact of trade openness on output volatility. Empirical Economics, 49(3), 881-887.

Bane, J. (2018). Dynamics and determinants of inflation in Ethiopia. In Economic Growth and Development in Ethiopia (pp. 67-84). Springer, Singapore.

Bugamelli, M. & Paternò, F. (2017). Output growth volatility and remittances. Economica, 78(311), 480-500.

Ćorić, B. (2019). Variations in output volatility: Evidence from international historical data. Economics Letters, 178, 102-105.

Dabušinskas, A., Kulikov, D., & Randveer, M. (2013). The impact of volatility on economic growth. Bank of Estonia Working Paper No. wp2012-7.

Dechassa, C. & Tolosa, T. (2015). The contribution of agriculture to development: A critical review in Ethiopian context. The international journal of social sciences, 32(1), 54-66.

Degu, A. A. (2019). The nexus between population and economic growth in Ethiopia: An empirical inquiry. International Journal of Business and Economic Sciences Applied Research (IJBESAR), 12(3), 43-50.

Degu, A. A. & Bekele, D. T. (2019). Macroeconomic determinants of total factor productivity and its trend in Ethiopia. International Journal of Research in Business and Social Science, 8(6), 219-228.

Ezzat, H. (2012). The application of GARCH and EGARCH in modeling the volatility of daily stock returns during massive shocks: The empirical case of Egypt. International Research Journal of Finance and Economics, 78(96), 143–154.

Fang, W. S. & Miller, S. M. (2018). The great moderation and the relationship between output growth and its volatility. Southern Economic Journal, 819-838.

Furuoka, F. (2018). Is population beneficial to economic growth? An empirical study of China. Quality & Quantity, 52(1), 209-225.

Iseringhausen, M. & Vierke, H. (2019). What drives output volatility? The role of demographics and government size revisited. Oxford Bulletin of Economics and Statistics, 81(4), 849-867.

Jungeilges, J. & Ryazanova, T. (2018). Output volatility and savings in a stochastic Goodwin economy. Eurasian Economic Review, 8(3), 355-380

Kehinde, O. H. & Agnes, O. (2017). Impact of agricultural output volatility on economic growth in Nigeria: EGARCH analysis. Journal of Agriculture and Veterinary Science (IOSR-JAVS), 10(1), 04-10.

Lama, A., Jha, G. K., Paul, R. K., & Gurung, B. (2015). Modelling and forecasting of price volatility: an application of GARCH and EGARCH models. Agricultural Economics Research Review, 28(1), 73-82.

Laurenceson, J. & Rodgers, D. (2020). The Impact of Volatility on Growth in China. Frontiers of Economics in China, 5(4), 527-536.

Lin, S. C. & Kim, D. H. (2014). The link between economic growth and growth volatility. Empirical Economics, 46(1), 43-63.

Mekonnen, J. L. & Dogreul, A. S. (2017). Growth volatility and openness in Sub-Saharan Africa. Marmara Journal of Economics, (2), 209-228.

Meller, B. (2013). The two-sided effect of financial globalization on output volatility. Review of World Economics, 149(3), 477-504.

Olabisi, M. (2020). Input–output linkages and sectoral volatility. Economica, 87(347), 713-746.

Onyimadu, C. (2016). Macroeconomic volatility and economic growth: Evidence from selected African countries. University Library of Munich, Germany.

Perron, P. (1989). The great crash, the oil price shock, and the unit root hypothesis. Econometrica: Journal of the Econometric Society, 1361-1401.

Perry, G. (2019). Causes and consequences of high volatility in developing countries. Chapter 1. Beyond Lending: How Multilateral Banks can Help Developing Countries to Manage volatility. Retrieved from

Pesaran, M.H., Shih, Y., & Smith, R. (2001). Bounds testing approaches to the analysis of the level relationships. Journal of Applied Econometrics, 16, 289-326

Ramey, G. & V. Ramey. (1915). Cross-country evidence on the link between volatility and growth. American Economic Review, 85, 1138–1151.

Risteski, D., Sadoghi, A., & Davcev, D. (2013, November). Improving predicting power of EGARCH models for financial time series volatility by using google trend. In Proceedings of 2013 International Conference on Frontiers of Energy, Environmental Materials and Civil Engineering. Shangai, China.

Safdar, H., Maqsood, S., & Ullah, S. (2012). Impact of agriculture volatility on economic growth: A case study of Pakistan. The Lahore Journal of Economics, 1(2), 24-34.

Scott, A. O. (2018). Oil price volatility and business cycles in Nigeria. Studies in Business and Economics, 12(3), 31-40.

Tang, S. H. K. & Leung, C. K. Y. (2016). The deep historical roots of macroeconomic volatility. Economic Record, 92(299), 568-589.



  • There are currently no refbacks.

Copyright (c) 2022 Journal of Economics, Business, & Accountancy Ventura

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

Abstracting & Indexing


Hasil gambar untuk ccbyncsa

Copyright @ 2010 Pusat Penelitian dan Pengabdian Masyarakat Sekolah Tinggi Ilmu Ekonomi (PPPM STIE)