Determinants of Investment in the Manufacturing Sector: A Micro Level Analysis on the Example of Injibara
Purpose: In this study an attempt was made to determine the factors influencing the probability of investment in manufacturing sector in Injibara city. Design/Methodology/Approach: For this purpose both the heteroskedastic probit and probit models were evaluated. Following the theoretical foundations laid by Jorgenson‘s model of optimal capital accumulation and other variables added, which are deemed relevant for this particular research, the probability of investment in manufacturing sector was estimated. Findings: The binary dependent variable invested in manufacturing sector was regressed with seven independent variables and with one variance function in the heteroskedastic probit model. The dependent variable was also regressed using the standard probit model to compare the results with the heteroskedastic probit model. Education, relative prices, blackout and initial capital are statistically significant at 5 percent level of significance. The variance function initial capital is also significant. When we look at the probit section only education, relative prices and blackout are significant. However, the maximum likelihood estimators of the probit model will be biased and inconsistent if the disturbances are either non-normal or heteroskedastic. Practical Implications: The probit model proposed in this research will be only used for comparison basis in this paper not being the appropriate model for decision making. Originality/Value: The research has proposed the variables which affect investment in manufacturing sector in Mekelle city at micro level, showing a significant importance for the determination of the level of investments in the manufacturing sector in the city of Injibara.