Determinants of Foreign Direct Investment Inflows in Ethiopia

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Anbessa, Abebe

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Addis Ababa University


This paper examines the potential determinants of FDI inflow to Ethiopia. The selected determinants are market size, trade openness, exchange rate and inflation rate were used as independent variables to measure the effect on FDI inflows to Ethiopia. The study covers 26-year period start from 1992 to 2017 of time series data collected from NBE and World Bank dataset and the collected data analyzed using ARDL model to get long run and short run effects of the variables. Firstly, the study found that in long run market size measured by real GDP per capita has negative but its effect is non-significant, exchange rate and trade openness have positive impact but their effect is insignificant. On the other hand, inflation rate has negative impact on FDI inflow in long term and its effect is significant at 10% level. Secondly, in short run, based on ARDL cointegration real GDP per capita, trade openness and inflation rate have negative impact on net FDI inflow. In short run exchange rate has positive impact on net inflow. The effect of all variables in short term is statistically insignificant. As per findings the recommendation also forwarded. The government should focus on creating conducive investment environment to attract more capital inflow. The government should also focus on more openness through increasing current export level. As a finding indicate exchange rate depreciation positive effect, the policy makers should review to increases on timely bases while controlling other factors increases inflationary level



ARDL, Foreign Direct Investment