THE NEXUS BETWEEN PUBLIC INVESTMENT, PRIVATE INVESTMENT AND ECONOMIC GROWTH IN ETHIOPIA: TIME SERIES ANALYSIS

Abstract

Ethiopia has weak easy business doing environment, sever corruption, poor public expenditure management, high inflation rate, infant private investment and huge foreign official assistance in general there is macro economy imbalance. This paper tries to investigate the nexus between private investment, public investment and economic growth in Ethiopia. The study applied ARDL estimation technique and time series data for the period 1982-2017 to investigate the relationship of private investment, public investment and economic growth. To establish a link between theory and empirics Solow growth model used. The findings from the study show the short-run the result private investment, public investment, official development assistance, broad money supply and inflation have significantly explains 85 percent on real GDP. In addition, such variables as labor force and human capital are found to have no significant role in the short run. The short-run coefficient of private investment, public investment, broad money supplyand official development assistance indicates a positive significant causal effect on economic growth.The long-run impact of public investment on economic growth is found to be positive and significant. Other variables like private investment, official development assistance, broad money supply and inflation are found to be statistically not significant in the long run model.The long-run impact of real public investment on private investment is found to be negative and statistically significant and the long-run impact of economic growth on private investment is found to be positive but statistically insignificant.Money supply is found to have long run impact on private investment significantly. The long-run impact of official development assistance on private investment is found to be positive and statistically significant. Government should have to take the prior step to improve the status of private investors and mitigate the investment obstacles such as road, electric power, water supply, Internet and establish the transparent administration system to improve the existing poor investment climate.