Open AccessEffect of Public Investment on Private Investment: Evidence from Ethiopia
Author(s) -
Temesgen Merga
Publication year - 2022
Publication title -
applied journal of economic managemnet and social sciences
Language(s) - English
Resource type - Journals
ISSN - 2811-1613
DOI - 10.53790/ajmss.v3i1.21
Subject(s) - investment (military) , gross private domestic investment , open ended investment company , crowding out , return on investment , economics , umbrella fund , public investment , private investment in public equity , monetary economics , short run , production (economics) , macroeconomics , private equity fund , fiscal policy , political science , politics , law , initial public offering
This study examined the effect of public investment on private investment and their relative effects on Ethiopia economic growth. The study employed the ARDL bounds testing approach. The empirical results revealed that public investment has a crowding-in effect on private investment in the long run which means, public investment stimulates private investment in the long run. However, the study revealed that public investment has a crowding out effect on private investment. In the other word, public investment has no direct impact on economic growth in the long run. However, private investment has a significant positive impact on economic growth in the long run while it is negatively related to economic growth in the short run. This suggests that private investment positively contributes to economic growth more than public investment. In addition, economic growth is positively associated with private investment although it is statistically insignificant in the long run. This implies that it is prudent for policy makers not to cut back on the efficient component of public investment and increase infrastructural public investment to a level that promotes private investment in the long run thereby indirectly fostering economic growth.