The Estimating the Economic Wide Effect of Ethiopian Renaissance Dam on Ethiopian Economy: A Recursive Dynamic Computable General Equilibrium Approach

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 that scheduled 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.