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

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 2009/10 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.