The Impact of Privatization on Economic Growth in Ethiopia
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Date
2025-06-01
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A.A.U
Abstract
This study examines the impact of privatization on Ethiopia's economic growth using annual
time series data from 1991 to 2023, distinguishing between short-run and long-run effects. While
real GDP per capita growth is used as a proxy for economic growth, claims on the private sector
are used as a proxy for the extent of privatization. The study also includes important
macroeconomic control elements like inflation, public debt, government spending, domestic
investment, and foreign direct investment. The short-term changes and long-term relationships
between these variables were represented using the Autoregressive Distributed Lag (ARDL)
model. The empirical findings demonstrate that privatization has a positive and statistically
significant effect on economic growth over the long and short terms. Inflation was found
significantly and negatively affecting economic growth in the short run while it has no significant
impact in the long run. Domestic investment has a positive and statistically significant long-term
impact. Public debt has statistically significant negative effects on long-term economic growth,
suggesting overtime debt burden undermines long-term economic performance. Government
spending has a negative significant impact in the short run and a statistically insignificant
impact on economic growth in the long term, while foreign direct investment had no apparent
influence. These results suggest that if privatization is coupled with favorable structural reforms
and macroeconomic stability, it can increase economic growth. The findings demonstrate how
crucial it is to develop policies that encourage private sector involvement while upholding
prudent budgetary and inflationary control. Additionally, focusing more on monitoring the
success of public investments and ensuring consistency in government spending will help prevent
resource misallocation and improve economic results.
Keywords: Ethiopia, Privatization, Economic growth, ARDL