Impact Of Privatization On Ethiopian Economy: Ardl Approach

Abstract

The aim of this research is to assess the impact of privatization on the Ethiopian economy by using real GDP growth as a proxy for economic development and measuring the extent of privatization through privatization proceeds. Time series data spanning from 1994/95 to 2021/22, comprising various explanatory and response variables, was employed. The data primarily originated from the annual reports of the National Bank of Ethiopia, Ministry of Public Enterprises, Ethiopian Investment Commission, and relevant global databases. To establish the long-term and short-term relationship between real GDP growth and independent variables, the Autoregressive Distributive Lag (ARDL) method was applied. The Bounds test findings indicate a stable long-term relationship between variables resulting from privatization. Empirical results demonstrate that both privatization and foreign direct investment resulting from privatization positively impact economic growth, proving statistically significant at 1% and 5%, respectively, both in the long and short run. Conversely, inflation and government consumption, acting asvi proxies for corruption, exhibit a negative influence on economic growth in the long term. Unexpectedly, private domestic investment yields a negative and insignificant result in the long run. The implications of this study for policy are noteworthy. The results suggest that implementing privatization policies, accompanied by other structural changes, can significantly enhance the economy. Therefore, policymakers and the government should focus on reinforcing privatization policies alongside other strategic measures. Additionally, a close monitoring system and consistent oversight of government consumption and budgetary practices are crucial to prevent misallocation and mismanagement of resources