IDEAS home Printed from https://ideas.repec.org/a/spr/futbus/v9y2023i1d10.1186_s43093-023-00229-w.html
   My bibliography  Save this article

Does financial repression inhibit or facilitate private investment? The case of Ethiopia

Author

Listed:
  • Fentaw Leykun Fisseha

    (Bahir Dar University)

Abstract

This study examines the impact of financial repression (FR) on private investment in Ethiopia over the period 1980 to 2020. Investigating the consequences of FR policies makes use of the cointegration technique. The dynamic ordinary least square (DOLS) estimation result demonstrated that FR has a detrimental and statistically significant impact on private investment, resulting in considerable lost opportunities for private investors by driving away banks' productive investment. In addition, the structural reforms implemented since 2011 have a beneficial and significant influence on private investment. The effects of financial development, per capita GDP, and domestic lending to the private sector all produce similar consequences. Additionally, Ethiopia's private investment is negatively impacted by trade liberalization and inflation. The primary findings are used to infer potential policy implications.

Suggested Citation

  • Fentaw Leykun Fisseha, 2023. "Does financial repression inhibit or facilitate private investment? The case of Ethiopia," Future Business Journal, Springer, vol. 9(1), pages 1-14, December.
  • Handle: RePEc:spr:futbus:v:9:y:2023:i:1:d:10.1186_s43093-023-00229-w
    DOI: 10.1186/s43093-023-00229-w
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1186/s43093-023-00229-w
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.

    File URL: https://libkey.io/10.1186/s43093-023-00229-w?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Yiping Huang & Xun Wang, 2011. "Does Financial Repression Inhibit or Facilitate Economic Growth? A Case Study of Chinese Reform Experience," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 73, pages 833-855, December.
    2. Feng Lu, Susan & Yao, Yang, 2009. "The Effectiveness of Law, Financial Development, and Economic Growth in an Economy of Financial Repression: Evidence from China," World Development, Elsevier, vol. 37(4), pages 763-777, April.
    3. Anton Korinek, 2011. "The New Economics of Prudential Capital Controls: A Research Agenda," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 59(3), pages 523-561, August.
    4. Dhaneshwar Ghura & Barry Goodwin, 2000. "Determinants of private investment: a cross-regional empirical investigation," Applied Economics, Taylor & Francis Journals, vol. 32(14), pages 1819-1829.
    5. Maurice Obstfeld, 2009. "International Finance and Growth in Developing Countries: What Have We Learned?," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 63-111, April.
    6. Joshua Greene & Delano Villanueva, 1991. "Private Investment in Developing Countries: An Empirical Analysis," IMF Staff Papers, Palgrave Macmillan, vol. 38(1), pages 33-58, March.
    7. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
    8. Rene M. Stulz, 1999. "Globalization of Equity Markets and the Cost of Capital," NBER Working Papers 7021, National Bureau of Economic Research, Inc.
    9. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    10. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
    11. Abdul Abiad & Enrica Detragiache & Thierry Tressel, 2010. "A New Database of Financial Reforms," IMF Staff Papers, Palgrave Macmillan, vol. 57(2), pages 281-302, June.
    12. Nicola Gennaioli & Alberto Martin & Stefano Rossi, 2014. "Sovereign Default, Domestic Banks, and Financial Institutions," Journal of Finance, American Finance Association, vol. 69(2), pages 819-866, April.
    13. Broner, Fernando & Erce, Aitor & Martin, Alberto & Ventura, Jaume, 2014. "Sovereign debt markets in turbulent times: Creditor discrimination and crowding-out effects," Journal of Monetary Economics, Elsevier, vol. 61(C), pages 114-142.
    14. Maurice Obstfeld, 2009. "International Finance and Growth in Developing Countries: What Have We Learned?," NBER Working Papers 14691, National Bureau of Economic Research, Inc.
    15. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    16. Carmen M. Reinhart & M. Belen Sbrancia1, 2015. "The liquidation of government debt," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 30(82), pages 291-333.
    17. Konstantinos Loizos, 2018. "The Financial Repression†Liberalization Debate: Taking Stock, Looking For A Synthesis," Journal of Economic Surveys, Wiley Blackwell, vol. 32(2), pages 440-468, April.
    18. René M. Stulz, 2007. "The Limits of Financial Globalization," Journal of Applied Corporate Finance, Morgan Stanley, vol. 19(1), pages 8-15, January.
    19. Reinhart, Carmen & Kirkegaard, Jacob & Sbrancia, Belen, 2011. "Financial repression redux," MPRA Paper 31641, University Library of Munich, Germany.
    20. Khan, Saleheen, 2017. "The savings and investment relationship: The Feldstein–Horioka puzzle revisited," Journal of Policy Modeling, Elsevier, vol. 39(2), pages 324-332.
    21. Paul Turner, 2010. "Power properties of the CUSUM and CUSUMSQ tests for parameter instability," Applied Economics Letters, Taylor & Francis Journals, vol. 17(11), pages 1049-1053.
    22. Johansson, Anders C. & Wang, Xun, 2011. "Financial Repression And Structural Imbalances," Working Paper Series 2011-19, Stockholm School of Economics, China Economic Research Center.
    23. V. V. Chari & Alessandro Dovis & Patrick J. Kehoe, 2020. "On the Optimality of Financial Repression," Journal of Political Economy, University of Chicago Press, vol. 128(2), pages 710-739.
    24. Bo Becker & Victoria Ivashina, 2018. "Financial Repression in the European Sovereign Debt Crisis [Sovereign debt, government myopia and the financial sector]," Review of Finance, European Finance Association, vol. 22(1), pages 83-115.
    25. Shafik, Nemat & Shafik, Nemat, 1992. "Modeling private investment in Egypt," Journal of Development Economics, Elsevier, vol. 39(2), pages 263-277, October.
    26. Fry, Maxwell J., 1980. "Saving, investment, growth and the cost of financial repression," World Development, Elsevier, vol. 8(4), pages 317-327, April.
    27. Thomas Barnebeck Andersen & Finn Tarp, 2003. "Financial liberalization, financial development and economic growth in LDCs," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(2), pages 189-209.
    28. Roubini, Nouriel & Sala-i-Martin, Xavier, 1992. "Financial repression and economic growth," Journal of Development Economics, Elsevier, vol. 39(1), pages 5-30, July.
    29. James B. Ang, 2010. "Determinants Of Private Investment In Malaysia: What Causes The Postcrisis Slumps?," Contemporary Economic Policy, Western Economic Association International, vol. 28(3), pages 378-391, July.
    30. Mr. Khaled Sakr, 1993. "Determinants of Private Investment in Pakistan," IMF Working Papers 1993/030, International Monetary Fund.
    31. Diaz-Alejandro, Carlos, 1985. "Good-bye financial repression, hello financial crash," Journal of Development Economics, Elsevier, vol. 19(1-2), pages 1-24.
    32. Graciela Laura Kaminsky & Sergio L. Schmukler, 2008. "Short-Run Pain, Long-Run Gain: Financial Liberalization and Stock Market Cycles," Review of Finance, European Finance Association, vol. 12(2), pages 253-292.
    33. Giovannini, Alberto, 1985. "Saving and the real interest rate in LDCs," Journal of Development Economics, Elsevier, vol. 18(2-3), pages 197-217, August.
    34. Kristofer Månsson & B. M. Golam Kibria & Ghazi Shukur & Pär Sjölander, 2018. "On the Estimation of the CO 2 Emission, Economic Growth and Energy Consumption Nexus Using Dynamic OLS in the Presence of Multicollinearity," Sustainability, MDPI, vol. 10(5), pages 1-11, April.
    35. Kumar Narayan, Paresh, 2005. "The relationship between saving and investment for Japan," Japan and the World Economy, Elsevier, vol. 17(3), pages 293-309, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mr. Etibar Jafarov & Mr. Rodolfo Maino & Mr. Marco Pani, 2019. "Financial Repression is Knocking at the Door, Again," IMF Working Papers 2019/211, International Monetary Fund.
    2. Demetriades, Panicos O. & P. Devereux, Michael & Luintel, Kul B., 1998. "Productivity and financial sector policies: Evidence from South East Asia," Journal of Economic Behavior & Organization, Elsevier, vol. 35(1), pages 61-82, March.
    3. Johansson, Anders C. & Wang, Xun, 2015. "Financial Liberalization and Urbanization," Stockholm School of Economics Asia Working Paper Series 2015-35, Stockholm School of Economics, Stockholm China Economic Research Institute.
    4. Claudio Borio & Marc Farag & Fabrizio Zampolli, 2023. "Tackling the fiscal policy-financial stability nexus," BIS Working Papers 1090, Bank for International Settlements.
    5. Acharya, Viral V. & Rajan, Raghuram G. & Shim, Jack B., 2024. "Sovereign debt and economic growth when government is myopic and self-interested," Journal of International Economics, Elsevier, vol. 150(C).
    6. Limodio,Nicola & Strobbe,Francesco, 2016. "Financial regulation and government revenue : the effects of a policy change in Ethiopia," Policy Research Working Paper Series 7733, The World Bank.
    7. Carmen M. Reinhart & Christoph Trebesch, 2015. "The Pitfalls of External Dependence: Greece, 1829–2015," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 46(2 (Fall)), pages 307-328.
    8. Peter Blair Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Journal of Economic Literature, American Economic Association, vol. 45(4), pages 887-935, December.
    9. Johansson, Anders C. & Wang, Xun, 2012. "Financial Sector Policies, Poverty and Inequality," Working Paper Series 2012-24, Stockholm School of Economics, China Economic Research Center.
    10. Ohls, Jana, 2017. "Moral suasion in regional government bond markets," Discussion Papers 33/2017, Deutsche Bundesbank.
    11. Tan, Bee Wah & Tang, Chor Foon, 2011. "The dynamic relationship between private domestic investment, the user cost of capital, and economic growth in Malaysia," MPRA Paper 27964, University Library of Munich, Germany.
    12. D’Erasmo, Pablo & Livshits, Igor & Schoors, Koen, 2024. "Banking regulation with risk of sovereign default," Journal of International Economics, Elsevier, vol. 150(C).
    13. Fernando Broner & Jaume Ventura, 2016. "Rethinking the Effects of Financial Globalization," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(3), pages 1497-1542.
    14. De Nicolò, Gianni & Juvenal, Luciana, 2014. "Financial integration, globalization, and real activity," Journal of Financial Stability, Elsevier, vol. 10(C), pages 65-75.
    15. Irina Balteanu & Aitor Erce, 2018. "Linking Bank Crises and Sovereign Defaults: Evidence from Emerging Markets," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 66(4), pages 617-664, December.
    16. Acharya, Viral V. & Rajan, Raghuram G. & Shim, Jack B., 2024. "Reprint of “Sovereign debt and economic growth when government is myopic and self-interested”," Journal of International Economics, Elsevier, vol. 149(C).
    17. Johansson, Anders C. & Wang, Xun, 2014. "Financial sector policies and income inequality," China Economic Review, Elsevier, vol. 31(C), pages 367-378.
    18. Oludele A. Akinboade, 2000. "The relationship between financial deepening and economic growth in Tanzania," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(7), pages 939-950.
    19. Zeeshan Atiq & M. Emranul Haque, 2015. "Financial Development and Economic Growth: The Role of Financial Liberalization," Centre for Growth and Business Cycle Research Discussion Paper Series 201, Economics, The University of Manchester.
    20. Ghosh, Atish R. & Ostry, Jonathan D. & Qureshi, Mahvash S., 2018. "Taming the Tide of Capital Flows: A Policy Guide," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262037165, December.

    More about this item

    Keywords

    Financial repression; Private investment; Dynamic OLS; Ethiopia;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:futbus:v:9:y:2023:i:1:d:10.1186_s43093-023-00229-w. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.