Private and Public Investment in Ethiopia: Pre and Post Reform

The paper tries to portray the relationship between private and public investment in Ethiopia using an ARDL co-integration approach. The result indicates that public investment complements private investment in the long run. Besides public credit to the private sector, real GDP and real lending interest rate have a positive impact on private investment while the level of uncertainty measured by the change in consumer price index and adverse movement in the terms of trade have a negative effect. The result also found evidence of bi directional causality (feedback effect) between real GDP and private investment. The results of impulse response and variance decomposition suggest that the consequences of shocks in real GDP and public investment become more noticeable in the long run with stable parameters.