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Public Infrastructure Investment, Private Capital Formation and Economic Growth in Ethiopia


The aim of this study is to investigate the relationship between private investment and public infrastructure investment, as well as their relative impact on the economic growth of Ethiopia using Co-integrated VAR approach for the period 1974/75 to 2013/14.

The findings of the study suggest that the impact of public infrastructure investment is differ across the different categories of public infrastructure investment and the time horizons under consideration. The study reveals that physical public infrastructure investment has a crowding-in effect on private investment both in the short run and long-run. On the other hand, social public infrastructure investment is found to deleteriously affect private investment in the long run while in the short-run it has insignificant impact.

In addition, the estimated growth model implied that the contribution of physical public infrastructure investment to the real GDP is positive in the long-run while it has a negative impact in the short run. In the long run, social public infrastructure investment exerts negative effect on economic growth while its impact in the short run is inconclusive.

Finally, as a policy implication, it will be natural to think of supplementary reforms so as to tackle the negative impact of social public infrastructure investment on private investment and economic growth. So, it is essential the government of Ethiopia to redefine the role of the public sector as a catalyst, rather than a provider, of the majority of infrastructure.

Corporate Author: 
Ethiopian Economics Association (EEA)
Ethiopian Economics Association (EEA)
Primary Descriptors: 


Secondary Descriptor: 

Capital Stock

Geographic Descriptors: 
Cataloge Date: 
Broad Subject heading: 
Economic Growth
Call Number: 
330.0963 PRO 2017
Serial Key Title: 
Proceedings of the Fourteenth International Conference on the Ethiopian Economy
Publication catagory: 
Content type: 
Publication date: 
2017-06-01 00:00:00
Conference Place: 
Addis Ababa, EEA Multi-purpose Building Conference Hall
Place of publication: 
Addis Ababa, Ethiopia
Type of material: 
Current frequency: 
Thematic area: 
Macroeconomics, Trade and Industry Related Topics
Conference date: 
July 21 – 23, 2016