Determinants of Private Investment

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Date

2024-11-21

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AAU

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This study examines the determinants of private investment (PI) in the Ethiopian economy. Understanding these macroeconomic dynamics is crucial for policymakers in developing countries, as these variables play a pivotal role in shaping economic trajectories. The study employs a comprehensive analysis, including descriptive statistics, trend analysis, correlation analysis, and distributional analysis and implies ARDL mixed order integrated purpose model of the key variables. The correlation results indicate a moderate positive correlation between inflation and private investment, suggesting that inflationary periods may stimulate investment to some extent as a hedge against price fluctuations. However, the relationship between interest rates and private investment is found to be weaker, highlighting the multifaceted nature of investment decisions. The ARDL results indicate that inflation has a statistically significant positive impact on private investment, suggesting that businesses tend to increase investment as a hedge against rising prices. Also, the interest rate is found to have positive significant effect on private investment. The trend analysis further highlights the dynamic nature of these macroeconomic factors, with notable peaks and troughs in inflation, interest rates, and private investment over time. These insights underscore the need for policymakers to closely monitor and address the complex interplay between these variables. The study's findings call for a comprehensive policy approach that targets both inflation control and interest rate management to foster a conducive environment for private investment and sustainable economic growth in Ethiopia. Policymakers should prioritize measures that promote price stability, maintain competitive interest rates, and create an overall macroeconomic environment that is favorable for private investment and long-term economic development

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