Determinants of Foreign Direct Investment Flows in Ethiopia
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Date
2017-01
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Addis Ababa University
Abstract
This paper attempts to examine the determinants of Foreign Direct Investment flow in Ethiopia.
The study applies multivariate ordinary least square regression by using time series data
covering over the period 1974 to 2015. In order to point out the main factors that can highly
affect the inflow of FDI in Ethiopia and to know how much these factors affect FDI leading to an
oscillating trend, the study took the determinant of FDI in Ethiopia such as infrastructure
development, the domestic market size and growth potential, macroeconomic stability, human
capital development, openness, and external debt and evaluate as to how they affect the
inflow of FDI. In the analysis there are findings. Firstly, I found that the explanatory variable
such as macroeconomic stability measured by inflation rate, and openness have significant and
negatively related to FDI. Second, exchange rate and school enrollment rate proxy of
macroeconomic stability and human capital development respectively are found positively
related and statistically significant to the inflow of FDI. Thread, gross fixed capital formation
and real GDP growth rate proxy of infrastructures
and market size respectively have
statistically significant and positively related to FDI. Last, foreign debt has negative and
insignificant effect on FDI. These findings imply that inflation and trade openness should be
controlled and improved by giving special attention.
Key words: FDI, FDI determinants, time series, ordinary least square regression
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Keywords
FDI; FDI determinants; time series; ordinary least square regression