The Domestic Private Investment in Ethiopia: Contribution, Constraints, Trends and Determinants

Abstract

The intended purpose of this study was to investigate the contribution, constraints, trends and determinants of private domestic investment in Ethiopia by taking annual data set of 34 years spanning from 1987-2021. The objective was achieved by collecting secondary data. Accordingly, domestics private investment has contributed a lot for the growth of the national economic despite the constrains. The domestic private investment in Ethiopia has faced severe trend due to trends in economics system in the country, i.e., pre-1974, 1974-1991 and Post 1991. The determining factors in this study included private investment, foreign direct investment, inflation rate, access to credit, GDP per capita, lending interest rate, human capital, exchange rate, public investment, taxation and political stability. Accordingly, GDP per-capital, political stability, public investment and lending interest rate have significant positive long run effect on private investment, while human capital and exchange rate have negative long run effect. Public investment and political stability have positive significant effect while lending interest rate and exchange rate have negative significant effect in the short run. Finally, expansion of infrastructure, increasing income generation mechanism for citizens, appreciation of domestic currency and creating fertile investment climate are some of the recommendations forwarded.