Impact of Government Capital Expenditure on Growth of Private Sector Investment: The Case of Ethiopia

Abstract

The paper is entitling with impact of government expenditure on growth of private sector investment the case of Ethiopia. Ethiopia’s public sector led development strategy has delivered strong growth and rising living standards. To sustain growth and employment creation, there is a need to carefully consider the balance between public and private sectors in the economy. The main object of this study is focused on the impact of government capital expenditure on growth of private sectors investment. Currently Ethiopian economy is goes sustainable growth with the program of millennium development goals, as result improving private investment also one of this program and the researcher wants to see the gap between the government capital expenditure and private sector investment means weather crowd in  or crowd out. The study used secondary time series data Annual from 1981 to 2014 and the multiple regression analysis and co-integration methods are used in estimating the parameters of the model. The result from the analysis indicates capital expenditure in the long run model output is significant and positive effect on the private investment and the positive value shows capital expenditure is crowed in private investment. This result also concludes different scholars. Accordingly, Serven (1998), He argued that an increase in public infrastructure raises the long run private capital stock by reducing the cost of capital to the private sector.

Keywords:  government expenditure, private sector investment