Determinants of Domestic Private Investment in Ethiopia

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For the last couple of decades, there are several economic and political reforms has been done to increase the performance of private investment in Ethiopia; but the actual performance of private investment was very low. This paper conducted with the main objective of identifying the determinants of private investment in Ethiopia. A time series data has been used for the period of 1992-2020. The researcher has been applied Domestic Private Investment as dependent variable and; Exchange rate, Federal money reserve, Inflation rate, Interest rate, loan for private sector, and loan for public investment as independent variables. Augmented dickey Fuller test was utilized to conduct unit root test to all variables; the result has been some variables were stationary at level and the rests were at 1st difference. Thus the analysis is used ARDL model in order to check the relationship between variables. The ECM, bound test and long run result showed that in short run, the interest rate and Federal Reserve Money affect Domestic private investment positively, however exchange rate and loan for private investment affect negatively; Likewise long run positive relationship exist exchange rate, nominal gross domestic product and loan for private investment as well. This shows there should be an intervention made by the Ethiopian government and respective body together, on creating stable investment environment through encouraging production of domestic products, access to loan for private sector and controlling the factors that alter interest rate and exchange rate; furthermore the government should retain Federal reserve money to increase financial resources as of to increase the performance of domestic private investment in the country. Finally, the policy makers should conduct detail investigation, and extensive studies on exchange rate, interest rate and proper utilization of loan issues.



ARDL model, ECM, Determinants, Domestic Private Investment, Ethiopia