IMPACTS OF PRIVATE AND PUBLIC PHYSICAL CAPITAL ACCUMULATIONS ON ECONOMIC GROWTH IN ETHIOPIA

Abstract

The main objective of this research is to empirically examine the impact of private and public physical capital accumulations on economic growth in Ethiopia for the period ranging from 1975-2013 by using Johansen maximum likelihood co-integration approach. The result shows that real private capital accumulation, public capital accumulation, human capital and trade openness have positive and statistically significant impact while active labor force has positive but insignificant impact in determining economic growth of Ethiopia in the long run. In addition, in the short run only human capital at its first difference is statistically significant in determining economic growth in the country while private and public capital stocks have insignificant impact on real GDP in the short run. This is because their impact may be seen in the long run or capital stock needs a long gestation period to bring a sustainable increment in economic growth. Overall, the major policy implication of this study is that, given the long run positive impact of private and public capital stocks on economic growth, it will be natural to think of supplementary reforms for the development of such sectors.