Effect of Public Investment on Private Investment: In Case of Ethiopia
No Thumbnail Available
Date
2020-06
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
A.A.U
Abstract
This study has examined the e ect of public investment on private invest-
ment in Ethiopia during 1993 to 2018. It also examined their relative con-
tribution to economic growth. The study employed the ARDL bounds testing
approach which is initiated by Pesaran & and Shin (1999) and later popularized
by (Pesaran, et al., 2001). The empirical results reveal that public investment
has a crowding-in e ect on private investment in the long run which means,
public investment stimulates private investment in the long run. In the short
run, however, public investment has a crowding-out e ect on private investment.
The previous year public investment also declines the current period private in-
vestment in the short run. On the other case, public investment has no direct
impact on economic growth in the long run. Economic growth is positively as-
sociated with private investment although it is statistically insigni cant in the
long run. However, it has no any immediate e ect on private investment in the
short run. On the other direction, private investment has a signi cant positive
impact on economic growth in the long run while it is negatively related to
economic growth in the short run. This suggests that there is a unidirectional
e ect, which means private investment could a ect economic growth while it
is not vice versa. In addition, private investment positively contributes to eco-
nomic growth more than public investment. Real interest rate has a signi cant
negative e ect on private investment in the long run while it is positively asso-
ciated with private investment in the short run. However, real interest rate has
no direct signi cant impact on economic growth in the long run.
Description
Keywords
Economic growth, Private investment, public investment