The link between globalization and economic growth: Evidence

Abstract

Globalization is making many African countries to be increasingly aware of the need to take into account an ever-expanding interconnection of  economies and sociocultural influences in the management of their national affairs. However, the existence and direction of causal relationship between economic growth and globalization are very debatable. In this context, the paper analyses the relationship between economic growth and globalization in Ethiopia, using an unrestricted vector autoregressive model, for the 1970-2014 period. By taking the case of Ethiopia as one of the few  countries in Africa that have shown the fastest growth rates in recent years, the paper investigates whether this growth has been influenced by the process of globalization. The results indicate that globalization and  economic growth tend to move in the same direction, both in the medium and long term. The policy implications of this would be that Ethiopia needs to increase its participation in the globalization process by opening up its economy to attract more investment and to benefit from its possible growth enhancing effects.

Keywords: Economic Growth, Globalisation, Vector Autocorrelation, Ethiopia