The Financial Determinants of Private Sector Investment: The Case of Ethiopia
International Journal of Science, Technology and Society
Volume 5, Issue 3, May 2017, Pages: 46-54
Received: Oct. 12, 2016; Accepted: Apr. 1, 2017; Published: May 27, 2017
Views 2439      Downloads 137
Brhane Teklay, 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
Article Tools
Follow on us
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.
Ethiopia, Private Investment, Financially Determinants, Johannes Co-integration
To cite this article
Brhane Teklay, The Financial Determinants of Private Sector Investment: The Case of Ethiopia, International Journal of Science, Technology and Society. Vol. 5, No. 3, 2017, pp. 46-54. doi: 10.11648/j.ijsts.20170503.14
Copyright © 2017 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License ( which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Aizenman, J., and N. P. Marion (1993), “Macroeconomic Uncertainty and Private Investment,” Economics Letters, 41, 207-210.
Ang, James B. “Determinants of private investment in Malaysia”, Western Economic Association International. ISSN: 1074-3529.
Asante, Y. (2000), “Determinants of Private Investment Behaviour,” AERC Research Paper, 100, Nairobi: African Economic Research Consortium.
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.
Dailami, M., and M. Walton (1992), “Private Investment, Government Policy and Foreign Capital: A Study of the Zimbabwean Experience,” in A. Chhibber, M. Dailami, and N. Shafik (eds.), Reviving Private Investment in Developing Countries: Empirical Studies and Policy Lessons, North Holland.
Esubalew, T. A, (2014), “An Investigation of Macroeconomic Determinants of Domestic Private Investment Evidence from East Africa” International Institution of Social Science.
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.
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.
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.
Fowowe, B. (2011). Financial Sector Reforms and Private Investment in Sub-Saharan African Countries. Journal of Economic Development, Volume 36, Number 3.
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.
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.
Lensink, R. (1996), “The Allocative Efficiency of the Formal versus the Informal Financial Sector,” Applied Economics Letters, 3 (3), 163-165.
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.
Matsheka, T. C. (1998), “Interest Rates, and the Saving-Investment Process in Botswana,” African Review of Money Finance and Banking, 1 (2), 5-23.
Osmond C. A. (2015), “Determinants of Private Investment in Nigeria an Econometric Analysis” International Journal of Economics, Commerce and Management Vol. III ISSN 2348 0386.
Oshikoya, T. W. (1992), “Interest Rate Liberalization, Savings, Investment and Growth: The Case of Kenya,” Savings and Development, 16 (3), 305-320.
Oshikoya, T. W. (1994), “Macroeconomic Determinants of Domestic Private Investment in Africa: An Empirical Analysis,” Economic Development and Cultural Change, 42 (3), 573-596.
Pfeffermann, G. P. and A. Madarassy (1992) 'Trends in Private Investment in Developing Countries': International Finance Corporation: The World bank, Washington D. C.
Seck, D., and Y. H. El Nil (1993), “Financial Liberalization in Africa,” World Development, 21 (11), 1867-1881.
Serven L. (1997), “Uncertainty, Instability, and Irreversible Investment: Theory, Evidence, and Lessons for Africa,” Policy Research Working Paper, 1722, Washington D. C.: World Bank.
Science Publishing Group
1 Rockefeller Plaza,
10th and 11th Floors,
New York, NY 10020
Tel: (001)347-983-5186