Private Investment, Public Investment and Economic Growth Ethiopia
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Date
2006-07
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A.A.U
Abstract
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.
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Keywords
Economic Growth, Private Investment, Public Investment