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This study uses a simultaneous equation approach to investigate the impact of external debt on economic growth in Ethiopia using a macroeconometric model estimated for 1970-2000. The empirical findings reveal that external debt does not affect growth directly. The results indicate that external debt affects investment positively and is statistically significantly indicating external debt in Ethiopian case encourage investment rather than depress it. Furthermore, the result also confirms that there is no sign of crowding out effect through which external debt is hypothesized to affect growth.

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G.Jonse is working as Head of Strategic Planning and Management Office in the Ministry of Finance and Economic Development of Ethiopia. He received a bachelor s degree in Economics and a master s degree in Economic Policy analysis from Addis Ababa University. His major area is on Macroeconomic Policy analysis and Evaluation.

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