Abstract:
Privatization has been a prominent economic reform strategy implemented by many developing
countries, including Ethiopia. Recently, the Ethiopian government has announced plans for
further privatization to unlock the potential for economic expansion. This study investigates the
potential impact of Ethiopia's privatization program on its economic growth using data from
1994-2021. The study employs the Granger causality test and the Johansen co-integration
approach. The results of the Granger causality test show that previous values of all independent
variables have significant causation with current GDP, indicating their importance in economic
growth. While the Johansen co-integration approach shows, both the trace and maximum
eigenvalue tests confirm the existence of two co-integrating equations, indicating a long-run
relationship between the investigated variables. Subsequently, a Vector Error Correction Model
(VECM) is employed to further analyze the data. Before applying the time series data analysis,
the time series properties of all variables are tested for stationary using the Augmented DickeyFuller (ADF) and Phillips-Perron (PP) tests. The results indicate that all variables in the study
are stationary in their first difference. The study's findings reveal that foreign direct investment,
privatization, and political stability exert positive and statistically significant impacts on the
long-run economic growth of Ethiopia. In contrast, privatization and inflation have statistically
insignificant effects on short-run economic growth, while foreign direct investment and political
stability have positive and statistically significant impacts on short-run economic growth in
Ethiopia. These findings highlight the need for a comprehensive approach that combines
privatization with other structural changes to effectively enhance economic growth in Ethiopia.
Privatization alone may not be sufficient to stimulate short-term economic growth, necessitating
the implementation of additional policies. Therefore, the Ethiopian government should consider
strengthening other policy initiatives alongside privatization efforts to promote sustainable and
inclusive economic development in the country
