Impact of Government Capital Expenditure on Growth of Private Sector Investment: The Case of Ethiopia (original) (raw)

Effect of Public Investment on Private Investment in Case of Ethiopia

A.A.U, 2020

This study has examined the effect of public investment on private investment in Ethiopia during 1993 to 2018. It also examined their relative contribution to economic growth. The study employed the ARDL bounds testing approach which is initiated by Pesaran & Shin (1999) and later popularized by Pesaran et al., (2001). The empirical results reveal that public investment has a crowding-in effect on private investment in the long run which means, public investment stimulates private investment in the long run. In the short run, however, public investment has a crowding-out effect on private investment. In the other case, public investment has no direct impact on economic growth in the long run. However, private investment has a significant positive impact on economic growth in the long run while it is negatively related to economic growth in the short run. This suggests that private investment positively contributes to economic growth more than public investment. In addition, economic growth is positively associated with private investment although it is statistically insignificant in the long run. This implies that there is a unidirectional effect, which means private investment could affect economic growth while it is not vice versa.

Effect of Public Investment on Private Investment: Evidence from Ethiopia

Applied Journal of Economics, Management, and Social Sciences, 2022

Background: This study examined the effect of public investment on private investment and their relative effects on Ethiopia economic growth. Methodology: The study employed the Autoregressive Distributed Lag (ARDL) bounds testing approach to test the study objectives. Findings: The empirical results revealed that public investment has a crowding-in effect on private investment in the long run which means, public investment stimulates private investment in the long run. However, the study revealed that public investment has a crowding out effect on private investment. In the other word, public investment has no direct impact on economic growth in the long run. However, private investment has a significant positive impact on economic growth in the long run while it is negatively related to economic growth in the short run. This suggests that private investment positively contributes to economic growth more than public investment. In addition, economic growth is positively associated with private investment although it is statistically insignificant in the long run. This implies that it is prudent for policy makers not to cut back on the efficient component of public investment and increase infrastructural public investment to a level that promotes private investment in the long run thereby indirectly fostering economic growth.

The Role of Private Investment to the Economic Growth of Ethiopia

2015

Private sector development in Ethiopia is at its lower level. Public sector involvement is large. In light of this, the main objective of this study was to describe the current status of Private sector in the economy. The data used in this study was obtained from survey conducted on private investment and its challenges in Ethiopia and from National Bank of Ethiopia, MoFED, Ethiopian Statistical Agency, Ethiopian Investment Agency, IMF and the WB. To analyze the data, OLS method of estimation and descriptive statistics were used. A total of three explanatory variables were identified and included in the model out of which private and public investment were found to be statistically significant. The results, which support the endogenousgrowth-type model, indicated that the impact of increases in private investment on growth is large and significant, the increase in the net public investment, have a negative impact on growth and the increase in the active labor force has a positive im...

Analysis on the Determinants of Private Investment in Ethiopia A Time Series Analysis (1992-2016

This study investigates the determinants of private investment in Ethiopia for the period 1992-2016. The ARDL (Autoregressive Distributed Lag) approach to co integration is employed to test the existence of a long runrelationship, as well as to study the short run dynamics of private investment in Ethiopia. To that end, demand forprivate investment is estimated as a function of public investment, lending interest rate, saving interest rate, foreign aid, external debt, trade openness, business tax, and inflation rate. The original problem focuses on the assessment of factors that have either stimulated or dampened private sector investment in Ethiopia during the study period. The results of this study confirm some results found elsewhere in the empirical literature. Further, the study employed the variance decomposition and impulse response functions to investigate the dynamic simulations of the variables included in the estimated model Econometric evidence indicates that private investment is positively related to real saving interest rate and trade openness but negatively related to public investment, foreign aid, external debt, and business tax. Further the variance decomposition results show that innovations in business tax highly contributed to the forecast error of Ethiopia's trade balance as compared to other explanatory variables. The study finally recommends that countries should seriously work in creating enabling environment for private investment.

Determinants of Private Investment in Ethiopia (Econometric Analysis

Determinants of Private Investment in Ethiopia (Econometric Analysis), 2020

Though some improvements have been registered as a result of economic and political reforms, the performance of private sector has remained very low thus far. This study was conducted with the main objective of analyzing factors that determine private investment in Ethiopia. A 38-years secondary data (from 1980 to 2017) was collected from various national sources and for qualitative factors that cannot be captured in secondary data information is gathered from seventy manufacturing firms. Then, multiple regressions using OLS model was applied after the data sets were transformed to log form. And, to account for inherent problems of time series data, different tests such autocorrelation, stationary, heteroskedasticity, normality, functional misspecification, co-integration tests, and Error Correction Model/ECM/ were applied. The result shows that credit to private sector, foreign aid and broad money supply have significant positive long run effect, while public investment, external debt and real exchange rate have significant negative long run effect on private investment. In the short run, real GDP, foreign aid, and credit to private sector have significant positive, while exchange rate has significant short run negative effect on private investment. It recommends that Ethiopia should focus on the development of basic infrastructure by considering its effect on private investment like resource competition and access to finance. And also the country should have better financial access to finance investment with in determined place and time, and exchange rate stabilization policy.

Determinants of Private Investment in Ethiopia: A Time Series Study

Ethiopian Journal of Economics, 2011

In the growth literature, investment has been regarded as one of the primary engines of growth. Growth theories emphasise the importance of investment in determining the level of income (neoclassical) and the pace of economic growth (endogenous growth model). However, the Ethiopian private investment performance has been weak for long time. It had been stagnantly low until the end of the socialist regime. In spite of little improvement in the post-socialist era, the share of private investment in GDP has never been above 6 percent even until 2003. Yet, the reasons behind the weak performance have not been well studied. Hence, investigating the performance trend and maim constraints of private investment in Ethiopia becomes the core theme of this study. Targeting at addressing a question of what measures should be taken to promote investment in the country, the research proceeds to test empirically whether demand augmenting and trade liberalization policies, improved infrastructural facilities, macroeconomic and political stabilities improve the private investment performance of Ethiopia. Motivated by the modified version of the Flexible Accelerator Model of investment behaviour, the empirical investigation employs a multivariate single equation ECM estimation methodology on integrated of order one, I(1), variables using annual time-series data sets for 1950-2003 and two sub-periods. According to the estimation results, private investment in Ethiopia is influenced positively by domestic market, return to capital, trade openness and liberalization measures, infrastructural facilities and FDI; but, negatively by government activities, macroeconomic uncertainty and political instability. Hence, enhancing demand augmenting and trade liberalization policies, improving infrastructural facilities and maintaining macroeconomic and political stabilities should be among the main ingredients of a policy package designed to promote private investment in Ethiopia. Furthermore, the operations of the public sector and other institutions will need new thinking.

Effect of Public Expenditure on Economic Growth in the Case of Ethiopia

The Scientific World Journal

This study’s primary goal was to explain how Ethiopia’s economic growth affected government spending. The time series data utilized in the study were gathered between 1980 and 2018. The time series data were subjected to the Johansen cointegration test and the vector error correction model (VECM) in order to evaluate the short- and long-term correlations between public spending and economic growth in Ethiopia. According to the study, both long- and short-term economic growths are positively and significantly impacted by government spending on education. Long-term economic growth is negatively impacted by government expenditure on agriculture, while short-term effects are negatively impacted and considerable. In the long run, investment spending has a positive but negligible impact on economic growth; however, in the short run, it has a negative but large effect. Defense spending by the government has a positive and negligible effect on economic growth over the short and long terms. ...

The Financial Determinants of Private Sector Investment: The Case of Ethiopia

International Journal of Science, Technology and Society

This study mainly emphasized on the financial determinants of private sector investment in Ethiopia using annual time series data from 1975-2015. Using Johansen co integration test they have a significant relationship among variables and OLS regression analysis was undertake to estimate long run model and ECM has been used to find out the short run dynamics. In both long run and short run model the financial determinants variable like broad money supply, bank credit and availability of foreign exchange were positive relation with the private investment. The other macro variable taken was the capital expenditure, which is negatively affect in the long run and positively affect private investment in the short run. The researchers conclude based on past literature result's capital expenditure is positively association with private investment. The short run dynamics of estimated coefficient ECM which suggests a relatively quick speed of adjustment back to the long-run equilibrium. The findings of the study provide evidence that private investment in Ethiopia, like in other developing countries is affected by important financial and macroeconomic variables. The empirical evidence however has certain important policy implications, and in view of that recommendations have also been provided, in an attempt to help increase and stimulate private investment in Ethiopia.

Performances of Private investment in Ethiopia

Thesis Title: PERFORMANCES OF PRIVATE INVESTMENT IN ETHIOPIA By Mesay Moges Abebe June 2016 E-mail:mesaymoges51@gmail.com ABSTRACT In Ethiopia, various economic and political reforms which are expected to motivate the role of private sector in the economy have been made over the last couple of decades. Though some improvements have been registered as a result of such reforms, the performance of private sector has remained very low. This study conducted in order see the performances of private investment in regional distribution, sector composition, ownership structure, and employment opportunity creation. The result show that Most of private investment project concentrated around Addis abeba, with manufacturing and service sector and scores higher implementation rate. In addition to this most of foreign private projects are capital incentive while Domestic private projects have higher share in employment opportunity creation. Most of the developing regions exhibited small number of private projects as compare to other regions. The study set out to analyses the major factors that Affects of private investment in Ethiopia (1986-2015). Variables identified for the study include private investment, inflation rate, broad money supply, GDP per capita, interest rate, exchange rate, economic openness, public investment, and external debt. To enhance the analysis, Econometric model with OLS using multiple regressions was applied after the data sets were transformed to log form except investment lag. And, to account for inherent problems of time series data, different tests such as correlation and auto-correlation tests, stationary test, integration and co-integration tests applied. The regression results show that GDP per-capital, and external debt have significant positive long run effect on private investment, while broad money supply, public investment, interest rate and exchange rate have significant negative long run effect. Finally expansion of public investment in most developing regions, increasing income generation mechanism for citizens and creating fertile investment climate are some of the recommendation forwarded. Keywords: Private investment, performance and Ethiopia

Determinants of Domestic Private Investment in Ethiopia during 1971 to 2014: An Empirical Analysis

Determinants of Domestic Private Investment in Ethiopia during 1971 to 2014: An Empirical Analysis, 2016

Though, various economic and political reforms which are expected to stimulate the role of private sector in the economy have been made over the last couple of decades, the performance of private sector has remained relatively low so far. Hence, this study was conducted with the main objective of investigating and analyzing factors that determine domestic private investment in Ethiopia by using the framework of VAR and vector error correction mechanism using annual data covering the period from 1971 to 2014. The regression results show that public investment, real GDP, exchange rate and credit have significant positive long run effect on private investment, while interest rate has significant negative long run effect. In the short run, exchange rate has significant positive contribution to private investment, while inflation has significant short run negative effect on private investment after one lags. Hence, to promote the performance of private sector in the country, it is essential to take measures that can improve real income of people, and make public investment in basic infrastructures and institutions that are crucial to attract private investment. Besides, ensuring stable investment environment and macroeconomic and political stability are necessary to build lasting confidence of private investors. Introduction: Private investment is a crucial prerequisite for economic growth because it allows entrepreneurs to set economic activity in motion by bringing resources together to produce goods and services. Rapid and sustained growth is facilitated by a virtuous circle whereby entrepreneurship and investment lead to higher productivity, making it possible to invest larger sums in the future. In the course of this process, jobs are created and new technologies are introduced, especially through international trade and investment linkages. Competitive and well-functioning markets are crucial because they promote and reward innovation and diversification, foster firm entry and exit and help to ensure a level playing field for all private sector actors. They also have an important role in making the growth process more socially and geographically inclusive, which expands the opportunities for poor people to participate in and benefit from growth. Successful mobilization of private investment is thus increasingly important for creating employment, raising growth rates and reducing poverty. Investment plays a very important role in the economic growth of a country; it raises the productive capacity of an economy, increases the level of employment and promotes technical progress through embodiment of new techniques. It also plays a crucial role in determining long run productive capacity of an economy, because investment creates new capital goods, so as higher rate of investment means that capital stock is growing rapidly. Private investment therefore plays powerful mean for innovation economic growth and poverty reduction. Economic growth could be realized through a proper development policy, one of which could be promoting demand-driven investment. The experiences of most developed countries have shown that rapid growths of the economies have come through increased investment. Thus, investment plays a vital role for economic growth and development and for improving the welfare of the society. It also plays a multiplier effect through creating employment opportunity, reducing poverty, transferring technology through Foreign Direct Investment (FDI), and increasing capital accumulation. Therefore, Ethiopia is now strongly seeking investment in all sectors in general and in agriculture sector in particular from foreign as well as domestic sources. The Foreign Direct Investment (FDI) is expected to bring entrepreneurial skills and new technologies in addition to capital. Thus, private