The Macroeconomic Impacts of Privatization in Ethiopia: A Time Series Analysis
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Date
2020-06
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A.A.U
Abstract
This study attempts to asses the macroeconomic impacts of privatization in Ethiopia using
the data for the 1994-2018 period focusing on the growth, scal, and debt relations. The
main objective of the study is to examine the growth impacts of privatization directly and
in relation to the private sector development and boosting trade oppenes by overcoming the
previous studies data and methodological problems. After a simple economic growth model
of real GDP growth as a function of privatization proceeds, private sector contribution, gov-
ernment debt stock, trade openness, and government consumption, all econometric tests have
been conducted properly. All tests directed towards the econometric estimation method of error
correction model to be employed. The correlation analysis of whether privatization is justi ed
by the debt conditionality by the international and multilateral organizations and by the huge
national budget de cit is computed. It is found that privatization highly and signi cantly cor-
related with a national budget de cit but insigni cantly with debt stock. But it is found a
statistically signi cant Granger causality running from debt to privatization implying there is
debt conditionality for privatization in Ethiopia. The empirical evidence suggests that the debt
stock a¤ects economic growth negatively both in the short run and long run indicating the debt
overhang problem of the country which is a possible cause of privatization that does not have
a long-lasting growth impact. The private sector development has found insigni cant to the
economic growth of Ethiopia as proposed by the privatization program and other policies. Pri-
vate sector contribution a¤ects economic growth negatively and only signi cant in the long run.
The level of international competitiveness measured by trade openness has found a signi cant
positive growth impact in the short run and but insigni cant in the long run. This shows the
crucial role of competitiveness in the country. The empirical Granger causality test shows there
is no causality between competitiveness and privatization that could impact economic growth
by enhancing the e¢ ciency gain. Therefore the positive economic growth impact of competi-
tiveness comes from the country s trade potential and not by the policy of privatization.
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Keywords
Competitiveness, Error correction model, Sector contribution