International Journal of Science, Technology and Society

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The Financial Determinants of Private Sector Investment: The Case of Ethiopia

Received: 12 October 2016    Accepted: 01 April 2017    Published: 27 May 2017
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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.

DOI 10.11648/j.ijsts.20170503.14
Published in International Journal of Science, Technology and Society (Volume 5, Issue 3, May 2017)
Page(s) 46-54
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Ethiopia, Private Investment, Financially Determinants, Johannes Co-integration

References
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[4] Blejer, M. I. and M. S. Khan (1984) 'Government Policy and Private Investment in Developing Countries', Staff Papers-International Monetary Fund: 31 (2), 379-403.
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[6] Esubalew, T. A, (2014), “An Investigation of Macroeconomic Determinants of Domestic Private Investment Evidence from East Africa” International Institution of Social Science.
[7] Fairbairn, T. I. J. (1992). Private Sector Development in the South Pacific: Options for Donor Assistance, Pacific Studies Monograph No. 3, The Centre for South Pacific Studies, University of New South Wales.
[8] Fischer, S. E. Hernandez-Cata and M. S. Khan (1998). Africa: Is this the Turning Point? IMF Paper on Policy Analysis and Assessment 98/6, May.
[9] Fry, M. J. (1989) 'Foreign Debt Instability: An Analysis of National Saving and Domestic Investment Responses to Foreign Debt Accumulation in 28 Developing Countries', Journal of International Money and Finance 8 (3): 315-344.
[10] Fowowe, B. (2011). Financial Sector Reforms and Private Investment in Sub-Saharan African Countries. Journal of Economic Development, Volume 36, Number 3.
[11] Geda, A. (2006), “The structure and performance of Ethiopia's financial sector in the pre- and post-reform period with a special focus on banking” UNU-WIDER, United Nations University (UNU), No. 2006/112 ISBN 9291908967.
[12] Herandez-Cata, E. (2000). Raising Growth and Investment in Sub-Saharan Africa: What Can be Done? Policy Discussion Paper: PDP/00/4, International Monetary Fund, Washington, D. C.
[13] Lensink, R. (1996), “The Allocative Efficiency of the Formal versus the Informal Financial Sector,” Applied Economics Letters, 3 (3), 163-165.
[14] Maame E. E. and George A. and Emmanuel B., (2014) “The Financial Determinants of Private Investment in Ghana (ARDL approach)”Munich Personal RePEc Archive No. 57570.
[15] Matsheka, T. C. (1998), “Interest Rates, and the Saving-Investment Process in Botswana,” African Review of Money Finance and Banking, 1 (2), 5-23.
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[18] Oshikoya, T. W. (1994), “Macroeconomic Determinants of Domestic Private Investment in Africa: An Empirical Analysis,” Economic Development and Cultural Change, 42 (3), 573-596.
[19] Pfeffermann, G. P. and A. Madarassy (1992) 'Trends in Private Investment in Developing Countries': International Finance Corporation: The World bank, Washington D. C.
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Author Information
  • National Bank of Ethiopia, Applied Economic Modelling and Forecasting (MA), Addis Ababa University, Addis Ababa, Ethiopia; National Bank of Ethiopia, Statistics Mekelle University (BSc), Addis Ababa, Ethiopia

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    Brhane Teklay. (2017). The Financial Determinants of Private Sector Investment: The Case of Ethiopia. International Journal of Science, Technology and Society, 5(3), 46-54. https://doi.org/10.11648/j.ijsts.20170503.14

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    Brhane Teklay. The Financial Determinants of Private Sector Investment: The Case of Ethiopia. Int. J. Sci. Technol. Soc. 2017, 5(3), 46-54. doi: 10.11648/j.ijsts.20170503.14

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    Brhane Teklay. The Financial Determinants of Private Sector Investment: The Case of Ethiopia. Int J Sci Technol Soc. 2017;5(3):46-54. doi: 10.11648/j.ijsts.20170503.14

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  • @article{10.11648/j.ijsts.20170503.14,
      author = {Brhane Teklay},
      title = {The Financial Determinants of Private Sector Investment: The Case of Ethiopia},
      journal = {International Journal of Science, Technology and Society},
      volume = {5},
      number = {3},
      pages = {46-54},
      doi = {10.11648/j.ijsts.20170503.14},
      url = {https://doi.org/10.11648/j.ijsts.20170503.14},
      eprint = {https://download.sciencepg.com/pdf/10.11648.j.ijsts.20170503.14},
      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.},
     year = {2017}
    }
    

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    AU  - Brhane Teklay
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    AB  - 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.
    VL  - 5
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