Determinants of Domestic Private Investment in Ethiopia
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Date
2022-03
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A.A.U
Abstract
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.
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Keywords
ARDL model, ECM, Determinants, Domestic Private Investment, Ethiopia