Abstract
This study mainly emphasized on the financial determinants of private sector investment in Ethiopia using annual time series data from 1975-2015. Using Johansen co integration test they have a significant relationship among variables and OLS regression analysis was undertake to estimate long run model and ECM has been used to find out the short run dynamics. In both long run and short run model the financial determinants variable like broad money supply, bank credit and availability of foreign exchange were positive relation with the private investment. The other macro variable taken was the capital expenditure, which is negatively affect in the long run and positively affect private investment in the short run. The researchers conclude based on past literature result’s capital expenditure is positively association with private investment. The short run dynamics of estimated coefficient ECM which suggests a relatively quick speed of adjustment back to the long-run equilibrium. The findings of the study provide evidence that private investment in Ethiopia, like in other developing countries is affected by important financial and macroeconomic variables. The empirical evidence however has certain important policy implications, and in view of that recommendations have also been provided, in an attempt to help increase and stimulate private investment in Ethiopia.
Highlights
Error Correction Model (ECM) has been used to find out the short run dynamics
This paper investigated the financial determinants of private investment in Ethiopia by specifying a private investment model
The objective of the paper was to determine whether the financial determinants have contributed to improve private investment in Ethiopia
Summary
Private sector development involve the improvement of the investment climate which is crucial for sustaining and expanding businesses, stimulating economic growth, and has been the backbone of most developed and developing economies. The private sector is recognized as a critical stakeholder and partner in economic development, by helping people escape poverty through the provision of jobs and income, as well as the availability of necessary goods and services needed to enhance people’s standard of living (International Finance Corporation, 2011). For developing countries like Ethiopia the basic question in their economy is increase the production and improve the standard of living of their people so that there will be dramatic change in their economic, political and social conditions. As a result due attention has been given to development of private sector in developing countries to help improve economic growth (Ouattara, 2004). Reliable and continuous increase in domestic private investment helps in reduction of poverty
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