Estimating the Economic Wide Effect of Ethiopian Renaissance Dam on Ethiopian Economy

Academic Paper from the year 2019 in the subject Economics - Case Scenarios, grade: A, Addis Ababa University, language: English, abstract: This paper examines the economy wide effect of Ethiopian renaissance dam on Ethiopian economy. The model is based on an updated Social Accounting Matrix for 2014/15 that takes into account the structural changes in the economy. Given the additional electricity generation capacity of Ethiopia, the model run a policy simulation in which the additional 6000MW thatscheduled to come online near the future form renaissance dam. To analysis this policy option this paper outlined a recursive dynamic computable general equilibrium approach and hence uses the change in real GDP, sectors production, investment, external sector, household income and consumption expenditures, and household’s welfare relative to the baseline, as an indicators of the economic wide effects of the renaissance dam. In opting for policy shock, the results of exercise showed that with an increment in power supply from renaissance dam the country can optimize the beneficial impacts on its economy. Specifically the simulation results show a spreading out effect in real GDP, sectors production, real investment, household income and household’s consumption expenditure. Results also showed improvement in the welfare for all the household categories. However; the shift in relative income across the household categories favors high income households. Overall, this paper suggests that Ethiopian economy will enjoy the largest improvement with additional power supply resulting from Ethiopian renaissance dam, therefore; concerned bodies should exerted maximum efforts to finalize the projects on time and resolve the age-long problems of the people so that the economy maintains its tremendous progress.