Macroeconomic Determinants of Economic Growth in Zambia: Evidence From an ARDL-ECM Analysis, 1990-2024

Abstract

This study examined the macroeconomic determinants of economic growth in Zambia over the period 1990-2024 using an autoregressive distributed lag-error correction model (ARDL-ECM). Annual secondary data were drawn from the World Development Indicators for Gross Domestic Product (GDP), inflation, the real effective exchange rate, government expenditure, the real interest rate, and unemployment. Augmented Dickey-Fuller tests showed that all variables were integrated of order one, which justified the ARDL bounds-testing approach. The Schwarz Information Criterion selected an ARDL(1,0,2,0,2,1) specification, and the bounds test confirmed cointegration (F = 5.6746). The long-run estimates showed that the real effective exchange rate (b = 3.4725, p = 0.0011) and government expenditure (b = 0.0847, p = .0336) were positive and statistically significant determinants of GDP, whereas inflation, the real interest rate, and unemployment were not statistically significant in the long run. In the short run, changes in the real effective exchange rate, lagged changes in government expenditure, and current changes in unemployment significantly affected GDP. The error-correction term was negative and statistically significant (b = -0.1860, p < 0.001), implying that about 18.6% of short-run disequilibrium was corrected each year. Diagnostic tests indicated no serial correlation, no heteroskedasticity, normally distributed residuals, and correct functional form. The findings suggest that Zambia's growth path has been shaped primarily by exchange-rate conditions and the quality and persistence of fiscal activity, while labour-market disruptions matter more in the short run than in the long run. The article recommends exchange-rate stabilisation, more productive public spending, improved fiscal efficiency, and growth strategies that support employment creation.