Determinants of Foreign Direct Investment Inflows in Ethiopia

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Addis Ababa University


The study was carried out to establish the possible factors that determine the inflow of Foreign Direct Investment into Ethiopia. In this study, I used secondary time series data sample from 1992 to 2014. The Ordinary Least Squares (OLS) estimation is used and the time series properties of the variables were examined in the process. It first tests for unit root using the Augmented Dickey Fuller (ADF) test. The ARDL technique was employed to derive the long-run relationship. The ARDL model, however, failed to support any long-term relationships between FDI and each explanatory variable. The result of short run dynamic model shows that financial development and market size significantly and negatively affects the inflow of FDI. Trade openness exert positive relationship with FDI and significant at 10% significant level. Both Inflation and external debit affect FDI negatively but insignificant, and infrastructure development positively affects but insignificant FDI. From a policy point of view, the results suggest that, to promote FDI, Ethiopia should develop and introduce policies that increase the level of trade openness. Key Words: FDI in Ethiopia, OLS, Secondary time series data, Time Series properties, ADF Test, and ARDL Technique



FDI in ethiopia, OLS, Secondary time series data, Time series properties, ADF test, ARDL technique