An Empirical Assessment of the Nexus between External Debt and Economic Growth in Ethiopia

In the economic literature there was a disagreement among scholars regarding the interlink between external debt and economic growth in developing countries like Ethiopia. The study investigates the interplay between external debt and economic growth in Ethiopia from 1991 to 2023. The study used the ARDL model for data analysis, focusing on the dependent variable, gross domestic product per capita, and the endogenous variable external debt, addition to the selected exogenous variables used in the model. The study found that among Kenya, Ethiopia, and Tanzania's external debt, Kenya reached the highest levels by 2023; and followed by Ethiopia, which its economic growth has been influenced by both political instability and external debts. Furthermore, the study found that the trend of Ethiopia’s inflation and governance quality indicators have been unstable, while Tanzania and Kenya maintain stable trends relatively. In general, the relationship between external debt and economic growth is a complex issue; and it is recommended that the Ethiopian government should enhance economic growth by ensuring political stability, implementing prudent debt management strategies, enhancing ties with the diaspora, and promoting financial inclusion through digital payment platforms.