Browsing by Author "Melaku Shumet"

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    Impact of Foreign Direct Investment on Economic Growth in Ethiopia
    (A.A.U, 2025-05-21) Melaku Shumet; Fantu Guta (PhD)
    This study used time series models and tests to investigate the impact of FDI on Ethiopian economic growth from 1980 to 2022. ADF test for unit root result suggests that some variables are integrated of order one I (1), stationary at their first differences and the remaining variables are integrated of order zero I (0), stationary at their level. Bound test of co-integration test indicates the presence of long-run co-integration among the variables. The long run estimates indicated that human capital and Debt can have a positive impact on economic growth in Ethiopia. For example, debt can be used to finance investments in infrastructure, education, and healthcare. These investments can lead to increased productivity, higher incomes, and improved living standards. Debt can also be used to finance government programs that support economic growth, such as subsidies for businesses or tax breaks for investors. Additionally, debt can be used to smooth out economic downturns by allowing the government to maintain spending levels even when tax revenues are low on the one hand, inflation, exchange rate and political instability have a significant and negative impact on economic growth in Ethiopia, while, FDI and trade openness was both insignificant and negative impact on economic growth of Ethiopia. Meanwhile, the estimated coefficient on the error correction term is what we call the speed of adjustment or the adjustment coefficient shows that the long-term economic growth shock is adjusted (back to) equilibrium by 79.27% within a year. Foreign direct investment (FDI) has a significant impact on Ethiopia's economy. It can lead to job creation, technology transfer, and economic growth. However, it can also have negative consequences, such as environmental damage and exploitation of workers.