Trends and Factors of Economic Growth from a Macroeconomic Perspective: An Analysis of Ethiopian Development Dynamics

A key macroeconomic objective for any economy is price stability and economic growth, although unpredictable growth can have a detrimental effect on a country's economic performance. By examining trends and the causal relationships between macroeconomic indicators—GDP per capita growth, FDI inflows, exports, imports, inflation, and unemployment—this study addresses Ethiopia's economic growth challenges. The study hypothesizes that through addressing all factors contributing to Ethiopia's economic growth, it is likely to reverse the country's declining trend in economic growth. The study utilized descriptive and the ARDL approach to analyze economic growth dynamics from 2000 to 2022, focusing on trend analysis and causal linkage among macroeconomic variables. The findings demonstrate that Ethiopia's economy underwent various growth phases, with an average GDP per capita growth rate of 6.40% and real GDP growth of 8.70%. While exports and FDI inflows have both short- and long-term benefits, unemployment has a detrimental influence on the growth of the country's GDP per capita. Despite their substantial short-term positive effects, imports have had a long-term detrimental effect on the GDP per capita growth. It has been shown that inflation has a significant short-term negative effect on the nation’s growth. There are multiple ways to assess the effectiveness of the approach, including promoting FDI inflows, encouraging predictable inflation, maintaining the current account balance, and creating more job opportunities. In light of this, the study established the importance of policies in attracting foreign investment, job creation, and preserving moderate inflation in the country.