Determinants of Private Investment
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Date
2024-11-21
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Publisher
AAU
Abstract
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