The Nexuses between Public Investment, Private Investment, Trade Opennes and Economic Growth in Ethiopia: Co-Integrated VAR Approach
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2012-06
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Abstract
This paper poses and tries to answer one major question: is there a nexus between public investment, private investment, trade openness and economic growth in Ethiopia? The study uses the Co-integrated VAR approach and compared to previous researchers on the topic, this study estimated investment, trade openness and growth nexus together for the period 1970-2009. There are four major findings. First, there is a strong evidence that trade openness, public investment and private investment have complementing effect on long run economic growth of the country. Second, trade openness and economic growth also complements private investment, but trade openness reduces public investment, while economic growth and private investment encourages expansion of public investment. Third, there is evidence of bi directional causality between real GDP, private investment and public investment. Fourth, the impulse response analysis showed that economic growth in Ethiopia exhibits quicker transitory pattern to the long run time path, while public investment and private investment exhibits relatively slower transitory pattern to the long run time path. Overall, the major policy implication of this study is that, given the long run positive impact of trade openness on private investment and economic growth, and as well as the long run positive impact of private investment on public investment and economic growth, it will be natural to think of supplementary reforms
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Nexus between public investment, Private Investment, Trade Openness