Determinants of private investment in the manufacturing sector of Ethiopia: Evidence from Ambo town, Oromia regional state

Abstract

Ethiopia has recently implemented policies aimed at rebalancing the roles of the public and private sectors in the economy, with a particular focus on developing the private sector. Private manufacturing investment is crucial for both local and national economic growth. However, private investment in Ethiopia faces several significant challenges. This paper examines the determinants of private investment in the manufacturing sector specifically in Ambo town. Using cross-sectional data collected from 266 randomly selected private investors and workers in private firms, this study employs descriptive and econometric analyses, utilizing the Ordinary Least Squares (OLS) regression model in STATA software version 12. Descriptive analysis is used to characterize the socioeconomic and demographic profiles of respondents, while the OLS regression identifies significant determinants of private manufacturing investment. The results indicate that education level, and land size, have significant effects on manufacturing private investment at 5% significance levels. The findings reveal that both education level and land size significantly influence private investment decisions in the manufacturing sector of Ethiopia. Higher levels of education among investors are associated with increased private investment in manufacturing. Education equips investors with the necessary skills and knowledge to navigate the complexities of the manufacturing sector, thereby enhancing their confidence and willingness to invest. Furthermore, access to land plays a critical role in attracting private investment in manufacturing. Investors with larger land holdings are more likely to allocate resources towards establishing or expanding manufacturing facilities, benefiting from economies of scale and operational efficiencies. The study concludes that these determinants of private manufacturing investment have varying impacts on the local economy and provide a foundation for further research in this area.