American Journal of Theoretical and Applied Business

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The Causal Linkage Between Agriculture, Industry and Service Sectors in Ethiopian Economy

Received: Jul. 08, 2019    Accepted: Aug. 04, 2019    Published: Oct. 10, 2019
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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.

DOI 10.11648/j.ajtab.20190503.13
Published in American Journal of Theoretical and Applied Business ( Volume 5, Issue 3, September 2019 )
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), 2024. Published by Science Publishing Group

Keywords

Cointegration, Granger Causality, Endogenous, Impulse Response, Variance Decomposition, ADLI

References
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  • 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

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    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

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    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

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  • @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://download.sciencepg.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}
    }
    

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    AU  - Adisu Abebaw Degu
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    JO  - American Journal of Theoretical and Applied Business
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    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.
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Author Information
  • Department of Economics, Salale University, Fiche, Ethiopia

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