The Effect of Privatization on Economic Growth of Ethiopia

Abstract

This study explores the relation between FDI and the privatization of state-owned companies. We believe that privatization impacts FDI, as the mechanism of promoting involvement of the private sector always goes hand in hand with steps of liberalization and by allocating the stock of newly privatized firms to foreign investors. They do anticipate FDI to promote restructuring attempts, as capital inflows, technologies and management skills that follow FDI make the environment more productive and offer governments a good climate for the privatization of dysfunctional firms. Our findings help our conclusion. This study aims to see whether privatization has long run or short run significant impact on economic growth of Ethiopia by considering GDP per capita as a proxy for economic growth and claims on private sector % of GDP as to measure of the magnitude of privatization. In order to analyze the secondary data from 1994 up to 20219. The result of the study shows debt, privatization and foreign direct investment found tohave positive and statistically significant impact on long run economic growth in Ethiopia. On the other hand, both privatization and debt has statistically insignificant impact while foreign direct investment has positive and statistically significant impact on short run economic growth. Based on finding of the study, the study recommended economic growth can be improved significantly when the privatization policy accompanied with other structural changes was implemented. The government of Ethiopia should strive to strengthen privatization policies together with other policies. Still, privatization alone will not be the enhanced solution to the elusive quest for growth.