The Financial Determinants of Private Sector Investment: The Case of Ethiopia
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Date
2016-06
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Addis Ababa University
Abstract
This study mainly emphasized on the financial determinants of private sector investment in
Ethiopia using annual time series data from1975-2015. 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.
Key words: Ethiopia, private investment, financially determinants, Johannes co-integration.
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Keywords
Ethiopia, Private investment, Financially determinants, Johannes co-integration