Investigation of structural relationships among the sectors becomes important from the policy angle. A clear perspective on the intersectoral linkage could be useful in formulating a favorable and appropriate development strategy. This study analyzed the intersectoral linkages in Ethiopian economy using a time series data ranging from 1975 to 2017. The study employed Johanson co-integration test, vector error correction model, granger causality test, impulse response and variance decomposition functions. The study found a stable long run relationship among agricultural, industrial and service sectors of the economy. Only industrial sector is found as endogenous to the system implying long-run causality runs form agricultural and service sectors to industrial sector. According to short run granger causality results, there is bi-directional causality between industrial and agricultural sectors, and between industrial and service sectors. The results of Impulse response and Variance decomposition functions suggest that the agricultural sector development plays a role in determining the growth of the economy via its linkages to the rest sectors of the economy. Therefore, development strategies such as, Agricultural Development Led Industrialization (ADLI) of Ethiopia, if properly implemented can play an encouraging role by reassuring the agricultural sector, so that the industrial sector would be promoted. In addition the percentage share of agricultural sector to GDP has been declining over the study period. However, this doesn’t indicate that the role of agricultural sector is falling. The analysis of intersectoral linkages identified agricultural sector as the principal economic activity that controls most economic activities in Ethiopian economy.
| Published in | American Journal of Theoretical and Applied Business (Volume 5, Issue 3) |
| DOI | 10.11648/j.ajtab.20190503.13 |
| Page(s) | 59-76 |
| Creative Commons |
This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited. |
| Copyright |
Copyright © The Author(s), 2019. Published by Science Publishing Group |
Cointegration, Granger Causality, Endogenous, Impulse Response, Variance Decomposition, ADLI
| [1] | Alemu Z G, K. O. (2003). Contribution of agriculture in the Ethiopian economy: a time-varying parameter approach. Agrekon, 42, 29-48. |
| [2] | Banumathy, K., & Azhagaiah, R. (2015). Long-Run and Short-Run Causality between Stock Price and Gold Price: Evidence of VECM Analysis from India. Management Studies and Economic Systems (MSES), 247-256. |
| [3] | Bathla, S. (2003). Inter-sectoral growth linkages in India: implications for policy and liberalized reforms. India. |
| [4] | Berhanu, N. (1996). Development Options for Ethiopia: Rural, Urban or Balanced. |
| [5] | Chebbi, H. E. (2010). Agriculture and economic growth in Tunisia. China agricultural Economic review, 2 (1), 63-78. |
| [6] | Engle, R., & Granger, C. W. (1987). Co-Integration and Error Correction: Representation, Estimation, and Testing. Econometrica, 55 (2), 251-276. |
| [7] | Erjavec, N., & Cota, B. (2003). Macroeconomic granger-causal dynamics in Croatia: evidence based on a vector error-correction modeling analysis. Ekonomski pregled, 54 (1-2), 139-156. |
| [8] | Fantu, C. (2016). Structural Transformation in Ethiopia: The Urban Dimension. ECPI Discussion Paper Final Stockholm International Peace Research Institute. |
| [9] | Fasikaw A. (2018). An Empirical Investigation of Inter Sectoral Linkage in Ethiopia: A Co-Integrated VECM Approach, June, 2018 Addis Ababa university, Ethiopia. Unpublished thesis paper. |
| [10] | Geda, A., Zerfu, D., & Ndung’u, N. (2011). Applied Time-Series Econometrics: A Practical guide for Macroeconomic Researchers with a focus on Africa. Central Bank of Kenya, African Economic Research Consortium and Addis Ababa University. |
| [11] | Gunjeet Kaur, S. B. (2009). An empirical investigation on their inter-sectoral linkages in India. Reserve Bank of India Occasional Papers, 30-72. |
| [12] | Hirota, Y. (2002). Reconsidering of the Lewis Model: Growth in a Dual Economy. |
| [13] | James F Oehmke, A. N. (2016). James F Oehmke, Anwar Naseem, Jock Anderson, Carl Pray, Contemporary African Structural transformation: An Empirical Assessment. |
| [14] | João, G., Gilson, P., & Marta C. N., S. (2014). Agriculture in Portugal: linkages with industry and services. |
| [15] | Johansen, S. (1992). Testing Weak Exogeneity and the Order of Cointegration in UK Money Demand. Journal of Policy Modeling, 313-334. |
| [16] | Johansen. (1988). Statistical analysis of co-integrating vectors. Journal of Economic dynamic and control, 12, 231-255. |
| [17] | Kassahun, T. (2006). Dynamic Sectoral Linkages in the Ethiopian Economy: A preliminary Assessment. Addis Ababa: Ethiopian Economic Association /Ethiopian Economic Policy Research Institute. |
| [18] | Katircioglu, S. (n. d). Co-Integration and Causality between GDP, Agriculture, Industry and Services growth in North Cyprus: Evidence from Time Series Data, 1977-2002. Review of Social, Economic & Business Studies, 7/8, 173-187. |
| [19] | Kaur, G., Bordoloi, S., & Rajesh, R. (2009). An empirical investigation on the inter-sectoral linkages in India. Reserve Bank of India. |
| [20] | Kelikume, D. S. (2011). Empirical analysis of the linkages between the manufacturing and other sectors of the Nigerian economy. 150. |
| [21] | Kohansal, M. T. (2013). Agricultural impact on economic growth in Iran using ARDL approach to co-integration. International Journal of Agriculture and Crop Sciences, 1223-1226. |
| [22] | Kym, A. (1987). On Why Agriculture Declines with Economic Growth. |
| [23] | Matahir, H. (2012). The empirical investigation of the nexus between agricultural and industrial sector in Malaysia. International Journal of Business and Social Science, 225-231. |
| [24] | MoFED. (2010). Growth and Transformation Plan (GTP I) 2010/11-2014/15. Addis Ababa: Ministry of Finance and Economic Development. |
| [25] | Naval, M. R. (2016). An Empirical study of Inter-Sectoral Linkages and Economic growth in India. American Journal of Rural Development, 4, 78-84. |
| [26] | NPC. (2016). Growth and Transformation Plan II (2015/16-2019/20). Addis Ababa: National Planning Commission. |
| [27] | Perez, K. K. (2004). Unbalanced growth. National bureau of economic research. NBER working paper series. |
| [28] | Phillips, P. a. (1988). Testing for a Unit root in time series regression. Biometrika,, 335-346. |
| [29] | Rahel, K. (2003). Ethiopia’s recent growth performance: a Survey of the literature. |
| [30] | Roman, T. (2012). The link between financial development and economic growth in Ethiopia. Addis Ababa, Ethiopia: Unpublished thesis paper. |
| [31] | Saikia, D. (2011). Analyzing inter-sectoral linkages in India. African Journal of Agricultural Research, 6 (33), 6766-6775. |
| [32] | Seid, N. (2015). Prospects and Challenges of Structural Transformation in Ethiopia: Assessing the Performance of GTP I and Reflecting on GTP II. Addis Ababa. Ethiopian Economics Association Ethiopian Economic Policy Research Institute. |
| [33] | Sepehrdoust, H., & Adnan, Q. m. (2012). An empirical study of inter-sectoral linkages and Economic growth. Academic Journals Inc., 494-504. |
| [34] | Sikhosana N, T. A. (2015). Inter-sectoral linkages and Agricultural growth in Swaziland for the period 1971-2011. Journal of Economics and Sustainable Development, 6, 218-228. |
| [35] | Subramaniam, V. (2010). Agricultural intersectoral linkages and their contribution to economic development. |
| [36] | Sylvester, A. A., Benedict, U. A., & Effifiom, E. C. (2016). Analysis of the Sectoral Linkages and Growth Prospects in the Nigerian Economy. IOSR Journal of Economics and Finance (IOSR-JEF), 7 (6), 73-80. |
| [37] | Tadele, F. (2000, April). Measuring sectoral interdependence in Ethiopia: a social accounting matrix (SAM) approach. Ethiopian Journal of Economics, IX. |
| [38] | Tadele, F. (2015). Sectoral economic growth and structural transformation in Ethiopia. Department of Economics, Addis Ababa University. |
| [39] | Timmer p., M. M. (2012). Patterns of growth and structural transformation in Africa: trends and lessons for future development strategy. International Food Policy Research Institute. |
| [40] | Uddin, M. M. (2015). Causal Relationship between Agriculture, Industry and Services Sector for GDP Growth in Bangladesh: An Econometric Investigation. Journal of Poverty, Investment and Development, 18, 124-130. |
| [41] | UN-Habitat. (n. d). Structural transformation in developing countries: Cross regional analysis. Nairobi, Kenya.: Structural transformation in developing co United Nations Human Settlements Programme (UN-Habitat). |
| [42] | Verner, N. M. (2001). Inter-sectoral dynamics and economic growth in Ecuador. The World Bank Latin America and the Caribbean Region Economic Policy Sector Unit. |
| [43] | Wooldridge, M. (2000). Introductory Econometrics: A Modern Approach (2 ed.). |
| [44] | Worku Gebeyehu, G. A. (2013). Which Sector Should Lead In Ethiopia? Industry or Agriculture? Addis Ababa: Ethiopian Economic Association. |
| [45] | Wubshet, O. (2008). The determinant of aggregate import demand in Ethiopia: co integration analysis. Addis Ababa, Ethiopia. unpublished thesis. |
| [46] | Xinshen, D. & Steven Haggblade, B. F. (2007). Agricultural Growth Linkages in Ethiopia: Estimates using Fixed and Flexible Price Models. Washington: international food policy. |
| [47] | https://tradingeconomics.com/ethiopia/gdp-growth-annual 2018. |
| [48] | USAID/Ethiopia Agriculture Knowledge, Learning, Documentation and Policy Project. |
APA Style
Adisu Abebaw Degu. (2019). The Causal Linkage Between Agriculture, Industry and Service Sectors in Ethiopian Economy. American Journal of Theoretical and Applied Business, 5(3), 59-76. https://doi.org/10.11648/j.ajtab.20190503.13
ACS Style
Adisu Abebaw Degu. The Causal Linkage Between Agriculture, Industry and Service Sectors in Ethiopian Economy. Am. J. Theor. Appl. Bus. 2019, 5(3), 59-76. doi: 10.11648/j.ajtab.20190503.13
AMA Style
Adisu Abebaw Degu. The Causal Linkage Between Agriculture, Industry and Service Sectors in Ethiopian Economy. Am J Theor Appl Bus. 2019;5(3):59-76. doi: 10.11648/j.ajtab.20190503.13
Share This Article
Twitter
Linked In
Facebook
Copy
Download@article{10.11648/j.ajtab.20190503.13,
author = {Adisu Abebaw Degu},
title = {The Causal Linkage Between Agriculture, Industry and Service Sectors in Ethiopian Economy},
journal = {American Journal of Theoretical and Applied Business},
volume = {5},
number = {3},
pages = {59-76},
doi = {10.11648/j.ajtab.20190503.13},
url = {https://doi.org/10.11648/j.ajtab.20190503.13},
eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ajtab.20190503.13},
abstract = {Investigation of structural relationships among the sectors becomes important from the policy angle. A clear perspective on the intersectoral linkage could be useful in formulating a favorable and appropriate development strategy. This study analyzed the intersectoral linkages in Ethiopian economy using a time series data ranging from 1975 to 2017. The study employed Johanson co-integration test, vector error correction model, granger causality test, impulse response and variance decomposition functions. The study found a stable long run relationship among agricultural, industrial and service sectors of the economy. Only industrial sector is found as endogenous to the system implying long-run causality runs form agricultural and service sectors to industrial sector. According to short run granger causality results, there is bi-directional causality between industrial and agricultural sectors, and between industrial and service sectors. The results of Impulse response and Variance decomposition functions suggest that the agricultural sector development plays a role in determining the growth of the economy via its linkages to the rest sectors of the economy. Therefore, development strategies such as, Agricultural Development Led Industrialization (ADLI) of Ethiopia, if properly implemented can play an encouraging role by reassuring the agricultural sector, so that the industrial sector would be promoted. In addition the percentage share of agricultural sector to GDP has been declining over the study period. However, this doesn’t indicate that the role of agricultural sector is falling. The analysis of intersectoral linkages identified agricultural sector as the principal economic activity that controls most economic activities in Ethiopian economy.},
year = {2019}
}
TY - JOUR T1 - The Causal Linkage Between Agriculture, Industry and Service Sectors in Ethiopian Economy AU - Adisu Abebaw Degu Y1 - 2019/10/10 PY - 2019 N1 - https://doi.org/10.11648/j.ajtab.20190503.13 DO - 10.11648/j.ajtab.20190503.13 T2 - American Journal of Theoretical and Applied Business JF - American Journal of Theoretical and Applied Business JO - American Journal of Theoretical and Applied Business SP - 59 EP - 76 PB - Science Publishing Group SN - 2469-7842 UR - https://doi.org/10.11648/j.ajtab.20190503.13 AB - Investigation of structural relationships among the sectors becomes important from the policy angle. A clear perspective on the intersectoral linkage could be useful in formulating a favorable and appropriate development strategy. This study analyzed the intersectoral linkages in Ethiopian economy using a time series data ranging from 1975 to 2017. The study employed Johanson co-integration test, vector error correction model, granger causality test, impulse response and variance decomposition functions. The study found a stable long run relationship among agricultural, industrial and service sectors of the economy. Only industrial sector is found as endogenous to the system implying long-run causality runs form agricultural and service sectors to industrial sector. According to short run granger causality results, there is bi-directional causality between industrial and agricultural sectors, and between industrial and service sectors. The results of Impulse response and Variance decomposition functions suggest that the agricultural sector development plays a role in determining the growth of the economy via its linkages to the rest sectors of the economy. Therefore, development strategies such as, Agricultural Development Led Industrialization (ADLI) of Ethiopia, if properly implemented can play an encouraging role by reassuring the agricultural sector, so that the industrial sector would be promoted. In addition the percentage share of agricultural sector to GDP has been declining over the study period. However, this doesn’t indicate that the role of agricultural sector is falling. The analysis of intersectoral linkages identified agricultural sector as the principal economic activity that controls most economic activities in Ethiopian economy. VL - 5 IS - 3 ER -
Information
Email: