Corporate Finance

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The Impact of Foreign Currency Reserve on Ethiopian Manufacturing Sector Performance
(Addis Ababa University, 2025-08) Abrham Geremew; Tenkir Seifu (PhD)
This study investigates the impact of foreign currency reserves on Ethiopia’s manufacturing sector performance from 1984 to 2023. It follows a quantitative research approach and adopts an explanatory design to assess causal relationships. A comprehensive time-series dataset from the World Bank and the National Bank of Ethiopia is analyzed using the Autoregressive Distributed Lag (ARDL) model to capture both long- and short-term dynamics between foreign currency reserves and manufacturing value-added. Key findings reveal that stable foreign reserves significantly enhance manufacturing output in the long run, while short-term volatility in reserves has contractionary effects. Inflation is identified as a major long-term obstacle to manufacturing growth, despite temporary positive effects in the short term. Additionally, the relationship between foreign direct investment (FDI) and manufacturing output is positive but weak, whereas imports show no statistically significant impact. The study suggests that policymakers focus on building optimal reserve levels and mitigating inflationary pressures to foster a resilient and competitive manufacturing sector in Ethiopia.