Private Investment, Public Investment and Economic Growth Ethiopia

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This thesis investigates the direction and magnitude of the linkages between private investment and public investment, as well as their relative impact on economic growth in Ethiopia. To that end, an error correction model employed on a time series data for the study period ranging from 1970/ 71 -2004/05. The study reveals that both private and public investment has stimulated economic growth in Ethiopia. In addition to that, the impact of private investment on economic growth has been found to be more pronounced than public investment in the long run while public investment shows a more pronounced impact in the short run. With respect to the relationship between public and private investment, Public investment is found to deleteriously impacted private investment in the short run while in the long run it has insignificant impact, implying that the crowding-out impact of public investment have been large enough to offset any crowding-in effects in the short run. Moreover the study shows the significant and positive impact of output growth in stimulating private investment. The paper thus concludes that the long run impact of private investment is higher than public investment, and involvement of public capita in sectors far from being an infrastructural nature may jeopardize favorable effects of public sector infrastructural investment on private sector. The result implies that government needs to create more room for private sector participation.



Economic Growth, Private Investment, Public Investment