| Abstract: | Ethiopia has recently embarked on policies that aim at rebalancing the
role of public and private sector in the economy. To do so, the country
has been giving a due emphasis on the development of private sector.
This paradigm shift is basically to encourage private investment and
ultimately make private sector the engine of growth. Taking this policy
shift in to account, these study conduct as time series analysis of private
investment in Ethiopia covering annual dataset from 1980-2014. It
systematically examines the major determinants of private investment
by undertaking various techniques of tests such as multicollinearity,
autocorrelation, normality and model specification test. As the finding
indicates that real GDP growth rate, real lending interest rate,
inflation and gross fixed capital formation have a significant effect on
private investment; whereas real effective exchange rate has
insignificant effect on private investment. Regarding the results, the
study provides evidence that real GDP growth rate, inflation, real
lending interest rate, real effective exchange, and gross fixed capital
formation both in a short-run and long-run significantly affect the level
of private investment. Hence, to promote the performance of private
sector to a higher level, it is essential to take measures that can
improve real GDP in general and real income of people in particular,
and make public investment in basic infrastructures (gross fixed capital
formation) and institutions that are crucial to attract private
investment. Besides, ensuring stable Investment environment (such as
consistent investment policy and requirements/regulatory frameworks/,
and macroeconomic and political stability), and addressing
bureaucratic inefficient and poor governance problems are necessary
to build lasting confidence of private investors. |
