Ethiopian Higher Education and Economic Growth Nexus

Abstract

Ethiopian government has paid great attention to higher education expansion and hence, it has been a national policy issue of the country. The study investigated the dynamic relationship between higher education and economic growth in Ethiopia using annual data collected from 1981-2014. Autoregressive Distributive Lag framework was used along with Error Correction Term so as to investigate long run relationship between real GDP, enrollment in higher education, gross capital formation and labor. The result from bounds test confirmed the existence of strong long run relationship between variables. Enrollment in higher education and gross capital formation has a positive long-run effect on real GDP. But, only enrollment in higher education has a negative effect in the short run. The study utilized granger causality test in order to examine causal relationship between higher education and economic growth. According to the test result, a unidirectional causality running from higher education to economic growth was observed. The necessary diagnostic tests were applied in order to check reliability and acceptability of model outputs and they were found satisfactory. Drawing on the finding it is recommended that government should continue expanding the provision of higher education and in the meantime, endeavor to improve the quality of the provision.