The Role of Private Investment to the Economic Growth of Ethiopia

Abstract

Private sector development in Ethiopia is at its lower level. Public sector involvement is large. In light of this, the main objective of this study was to describe the current status of Private sector in the economy. The data used in this study was obtained from survey conducted on private investment and its challenges in Ethiopia and from National Bank of Ethiopia, MoFED, Ethiopian Statistical Agency, Ethiopian Investment Agency, IMF and the WB. To analyze the data, OLS method of estimation and descriptive statistics were used. A total of three explanatory variables were identified and included in the model out of which private and public investment were found to be statistically significant. The results, which support the endogenousgrowth- type model, indicated that the impact of increases in private investment on growth is large and significant, the increase in the net public investment, have a negative impact on growth and the increase in the active labor force has a positive impact on growth (positive externalities). The findings of the study imply that public policies should be supportive to the growth of private sector i.e. growth is boosted by economic policies that foster external competitiveness and a prudent fiscal stance.