Determinants of Foreign Direct Investment Inflows in Ethiopia
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Date
2016-02
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Addis Ababa University
Abstract
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
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Keywords
FDI in ethiopia, OLS, Secondary time series data, Time series properties, ADF test, ARDL technique