Privatization Impact on Economic Growth in Ethiopia: ARDL Approach

Abstract

The objective of this paper is as to check whether privatization has long run or short run significant impact on economic growth of Ethiopia by considering real GDP growth as a proxy for economic growth and privatization proceeds as to the measure of the magnitude of privatization. A time series data starting form 1994/95S1 up to 2016/17S2 using some explanatory and response variables. Autoregressive Distributed Lag (ARDL) method to characterize long run and the short run relationship between real GDP growth and independent variables was used. The empirical results reveal that both privatization and foreign direct investment due to privatization are found to have a positive impact on economic growth and statically significant at 1 & 5 percent respectively in the long run as well as in the short run. While, inflation and government consumption proxy to corruption affects economic growth negatively in the long run. The unexpected result of private domestic investment had a negative sing and insignificant in the long run. This study has an important policy implication. The findings of this study imply that economic growth can be improved significantly when the privatization police accompanied with other structural change was implemented. Hence policy makers and /or the government should strive to strengthen privatization policies together with other policies. In addition to this effort, there should be a close monitoring and consistent government consumption and budget monitoring strategies, which is used to avoid misallocation and mismanagement of consumption.

Keywords: Ethiopia, Privatization, Economic Growth, Co-integration. ARDL

DOI: 10.7176/EJBM/11-4-03