Economic liberlisation and determinants of private investment in Ethiopia: An empirical analysis (1975-2000)

Abstract

This research proposed to investigate the impacts of macroeconomic variables and economic reforms on private investment in Ethiopia. This was prompted with the views being accorded Private sector investment today as the best economic agent in achieving sustainable development in developing countries. The outcome of this study would be deemed useful for Ethiopian policy makers in designing and formulating polices that would create em enabling environment for theflourishing of private sectors investment so as to boost growth and development of the economy. The accomplishment of this needs the information on economic and noneconomic factors affecting Ethiopia's private sector, hence the objective of this study. The study applies the time series annual datafor the period, 1975-2000. The study also employed a modified version of flexible accelerator model, which is adapted to incorporate some of the structural and institutional characteristics in developing countries. The econometric evidence reported that private investment is affected negatively and significantly by the debt stock, which the country borrows from international institution, the public expenditures, lagged depreciation of real exchange rate, long run inflation, and the war plagued between Ethiopia and Eritrea. Where as, the credit disbursed to private sector, the debt service payment, short run inflation, and the economic reforms, which captured by dummy variable D1 (economic liberalization.) are related infavor of private sector and affect significantly. Any appropriate investment policy to be formulated with a motive of encouraging private investment in Ethiopia must therefore take into consideration the impacts of these variables.