Assessement of the effect of government expenditure on privat investment in Ethiopia

Masterarbeit , 2014 , 106 Seiten , Note: 1 (A)

VWL - Finanzwissenschaft

This study attempts to investigate the effect of government expenditure on private investment in Ethiopia over the period 1980-2012. The central question of this study is weather government expenditure has a positive or crowding in effect (complementary hypothesis) or a negative or crowding out effect (the substitutability hypothesis )on private investment in Ethiopia. To achieve its objective it adopted a modified flexible accelerator model to enlighten on the economic relationship between private investment and the other variables and used the modern technique of vector auto regressive model (VAR) and vector error correction model(VECM)as its methodology. The study also used the Johansen-Juselius (1990) cointegration analysis of a multivariate system of equation to estimate the long run relationship between government expenditure and private investment to determine the order of integration of the variable and Granger-Causality test was undertaken to determine causal relationship between the variables. In addition to this the study employs the Augmented Dicky-Fuller (ADF) unit root test and phillip perron test. The statistical tests reveal that all-time series data are non-stationary in their level and they become stationary after diffrencing.i.e.they are integrated of order one I(1).The johansen-juselius cointegration test shows that the series are cointegrated and then employs the vector error correction model moreover the study applies the impulse response function (IRF)and forecast error variance decomposition (FEVD) to investigate the effect of government investment shocks on private investment. And the empirical findings support the complementary hypothesis between government capital expenditure and private investment and that tends to crowd-in private investment in Ethiopia. And the empirical finding of recurrent part of government expenditure shows a mixed effect of complementary hypothesis and substitutability hypothesis which tends to crowd-in and crowd out effect .Thus government expenditure have a positive as well as negative effect on private investment and finally the study is used CHOW test in order to know whether structural break has an effect on private investment or not and the result depict that there is a structural break that have a positive effect on private investment of Ethiopia.
Keyword: Government expenditure, private investment, VAR, crowding-In, crowding out, Ethiopia

Inhaltsverzeichnis (Table of Contents)

• Acknowledgment
• Table of contents
• List of Tables
• List of Figures
• Acronyms
• List of tables in the Appendix
• Abstract
• CHAPTER ONE: INTRODUCTION
• 1.1. Back ground of the Study
• 1.2. Statement of the Problem
• 1.3. Research Questions
• 1.4. Objective of the Study
• 1.5. Significance of the study
• 1.6. Limitation and Scope of the Study
• CHAPTER TWO: RESEARCH METHODOLOGY
• 2.1. Research Design
• 2.2. Data Type and Source
• 2.3. Method of data analysis
• 2.3.1. Descriptive Analysis
• 2.3.2. Econometrics Analysis
• 2. 4. Definition and Measurement of Variables
• 2.5. Theoretical Framework for econometric model specification
• 2.6. Econometric Model specification
• 2.7. Time series properties
• 2.7.1. Stationary Tests
• 2.7.2. Phillips-Perron (PP) test
• 2.7.3. Cointegration test
• 2.7.4. Granger Causality Test
• 2.8. Estimation Techniques
• 2.8.1. Vector Auto-Regression (VAR) analysis
• 2.8.2. Impulse Response Analysis
• 2.8.3. Variance Decomposition
• 2.8.4. The Error-Correction Model
• 2.9. Chow Test for Structural Stability
• CHAPTER THREE: RESULT AND DISCUSSION
• 3.1. Descriptive Analysis
• 3.1.1 Total Government expenditure and growth in Ethiopia
• 3.1.2. Composition of public expenditure in Ethiopia
• 3.1.3. Distribution of Government Expenditure
• 3.1.4. Sectorial composition of public expenditure in Ethiopia
• 3.1.5. Financing of Government Expenditure
• 3.1.6. Government budget deficit and means of financing
• 3.1.7. Trends of private Investment in Ethiopia
• 3.1.8. Investment during Derg period
• 3.1.9. Investment during post Derg period
• 3.1.10. Gross domestic savings and investment in Ethiopia
• 3.2 Econometrics Analysis
• 3.2.1 Augmented Dicky-Fuller test
• 3.2.2. Phillips-Perron (PP) test
• 3.2.3 Cointegration Analysis
• 3.2.4 Coitegration (Long run estimation)
• 3.2.5 Granger-causality test
• 3.2.6 VAR Estimation and Diagnostic Tests
• 3.2.7 Regressions Estimation and Diagnostic Tests
• 3.2.8 The short run error correction result of private investment
• 3.3 The Effect of Government Expenditure on Private Investment
• 3.4. The Effect of Recurrent Expenditure on Private Investment
• 3.5. The Effect of Budget Deficit on Private Investment
• 3.6. The Effect of Domestic credit to private sector on Private Investment
• 3.7. Forecast Error Variance Decomposition Analysis (FEVD)
• 3.8. Impulse response Function
• 3.9. Chow test result
• CHAPTER FOUR: SUMMARY, CONCLUSION AND POLICY IMPLICATION
• 4.1 Summary
• 4.2. Conclusion
• 4.3 Recommendation
• 4.4 Policy Implications
• 4.5 Areas for Further Research
• Reference

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This M.Sc. thesis aims to assess the impact of government expenditure on private investment in Ethiopia. The study utilizes econometric techniques to analyze the relationship between government expenditure, budget deficit, and private investment, considering the specific context of Ethiopia's economic development. The research aims to contribute to the understanding of the role of government expenditure in fostering private investment and economic growth in developing countries.

• The impact of government expenditure on private investment in Ethiopia
• The role of government budget deficit in influencing private investment
• The relationship between domestic credit to the private sector and private investment
• The impact of different components of government expenditure on private investment
• Policy implications for promoting private investment and economic growth in Ethiopia

Zusammenfassung der Kapitel (Chapter Summaries)

Chapter One provides an introduction to the study, outlining the background, statement of the problem, research questions, objectives, significance, and limitations of the research. It highlights the importance of understanding the relationship between government expenditure and private investment in Ethiopia's context.

Chapter Two delves into the research methodology employed in the study. It discusses the research design, data type and source, methods of data analysis, including descriptive and econometric approaches. The chapter also elaborates on the theoretical framework, econometric model specification, time series properties, estimation techniques, and the Chow test for structural stability.

Chapter Three presents the results and discussion of the study. It begins with a descriptive analysis of government expenditure, private investment, and related economic indicators in Ethiopia. The chapter then proceeds to the econometric analysis, including tests for stationarity, cointegration, Granger causality, and VAR estimation. The results are discussed in detail, focusing on the impact of government expenditure, budget deficit, and domestic credit to the private sector on private investment.

Schlüsselwörter (Keywords)

The keywords and focus themes of the text include government expenditure, private investment, Ethiopia, econometrics, budget deficit, domestic credit, economic growth, development, and policy implications. The study examines the relationship between government expenditure and private investment in Ethiopia, analyzing the impact of different components of government expenditure, including recurrent expenditure and budget deficit, on private investment. The research also explores the role of domestic credit to the private sector in influencing private investment and economic growth.

• Hochschule: Wollega University (wollega University)
• Veranstaltung: Development Economics
• Note: 1 (A)
• Autor: Frew Hailu (Autor:in)
• Erscheinungsjahr: 2014
• Seiten: 106
• Katalognummer: V282156
• ISBN (eBook): 9783656766711
• ISBN (Buch): 9783656766728
• Sprache: Englisch
• Schlagworte: assessement, ethiopia