The Effect of Government Infrastructural Spending on Economic Growth in Ethiopia

Every nation’s government deploys different strategies to boost the economic growth of their country. The output level of any economy was either supported or retarded by different economic factors and shocks. Among many policies government spending on infrastructural components is among the prominent one. But there was tense debate that the way governments spend on infrastructure has a varied implication. In line with this this study examined how government spending on infrastructure relates or affects Ethiopian economic growth. The study also investigated how military expenditure crowds out other infrastructural spending. Finally control variables like inflation and foreign direct investment were incorporated into the model to determine their combined effect on economic growth. To undertake the study a time series data from 1995to 2020 was used. The study adopted the ARDL model to estimate the data. The result from the study shows that only government spending on military and education was significant in the short run. The long run result of the study shows that lnGETC, lnGEED and lnGEEL has a positive and significant effect on economic growth. However government spending on lnGEDF has a significant negative implication on economic growth. The other variables remain insignificant. Finally the study recommended that Government has to inject or increase the spending on infrastructural components to assist the economy of the country to grow in fast manner government has to strive more to create diplomatic relationship in the international arena which helps to cut military spending that crowds out spending on infrastructural components.