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)

• 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...
• 3.2 Econometrics Analysis ......
• 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)..\li>
• 3.8. Impulse response Function........
• 3.9. Chow test result.

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This thesis examines the effect of government expenditure on private investment in Ethiopia. The study aims to analyze the relationship between government expenditure, private investment, and economic growth. The study utilizes econometric techniques, including time-series analysis and cointegration tests.

• The impact of government expenditure on private investment.
• The role of recurrent expenditure on private investment.
• The effect of budget deficit on private investment.
• The impact of domestic credit to the private sector on private investment.
• Economic growth and its relationship with government expenditure and private investment.

Zusammenfassung der Kapitel (Chapter Summaries)

Chapter One: Introduction.

This chapter presents the background of the study, outlining the importance of understanding the relationship between government expenditure and private investment in Ethiopia. The chapter also defines the problem, formulates research questions, and clarifies the objectives and significance of the study. It also addresses the limitations and scope of the research.

Chapter Two: Research Methodology.

This chapter details the research design and data sources used in the study. It outlines the methodology for data analysis, including descriptive and econometric analysis. The chapter also defines and measures key variables, discusses the theoretical framework for econometric model specification, and explores time series properties. Additionally, it explains the estimation techniques employed in the study, including Vector Auto-Regression (VAR) analysis, impulse response analysis, variance decomposition, the error-correction model, and the Chow test for structural stability.

Chapter Three: Result and Discussion.

This chapter presents and analyzes the findings of the study. It begins with a descriptive analysis of government expenditure and private investment trends in Ethiopia. Subsequently, the chapter delves into the econometric analysis, examining the cointegration relationship between government expenditure and private investment, the Granger causality test, and VAR estimation. The chapter further explores the short-run error correction results and the effects of various components of government expenditure, including recurrent expenditure, budget deficit, and domestic credit to the private sector, on private investment. Finally, it examines the forecast error variance decomposition analysis (FEVD) and the impulse response function to understand the dynamic relationships between these variables.

Schlüsselwörter (Keywords)

This thesis explores the critical relationship between government expenditure and private investment in Ethiopia, using econometric models and time series analysis. It focuses on analyzing the impact of different government expenditure components, including recurrent expenditure, budget deficit, and domestic credit to the private sector, on private investment. The study also examines the role of economic growth in this relationship, with a focus on the dynamics of private investment and government expenditure. The research utilizes key concepts such as cointegration, Granger causality, and the error correction model to understand the long-run and short-run effects of government expenditure on private investment and economic growth in Ethiopia.

• 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