The Impact of Foreign Direct Investment on the Performance of Agricultural Sector: the Case of Ethiopia
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Date
2023-07-03
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A.A.U
Abstract
FDI in agriculture is one of the outward-looking strategies for the enhancement of
agricultural production through availing capital and advanced technologies in developing
countries including Ethiopia. Even if FDI inflow in Ethiopia was assumed to exist since the
1950s, there are limited studies on the impact of FDI inflow on the Ethiopian agricultural
sector. The aim of this study is to examine the impact of agricultural FDI on the agricultural
production performance in Ethiopia. Data from secondary sources over the year 1981-2021
for agricultural real GDP and agricultural FDI inflow along with selected macro variables
was used in this study. Descriptive statistics and econometric models such as ARDL and
NARDL were employed for the analysis of data. FDI inflow showed fluctuating trend across
years, and floriculture followed by crop based and coffee based investments found to be the
major sub-sectors in agricultural FDI inflow. Based on NARDL model analysis, a unit
percent positive FDI shock had significant and favorable effect on the performance of
agricultural real GDP by 0.05 % in the long run. However, a negative FDI shock was found
to be statistically insignificant. In the short run, increase in FDI inflow during the past
lagged period reduced the current agricultural real GDP significantly. In similar fashion, a
decrease in FDI inflow in the past lagged period also significantly diminished the current
agricultural production. In conclusion, agricultural FDI inflow significantly affects the
performance of agricultural real GDP in the long run while its positive effect was not
automatic in the short run. According to the ARDL model, no statistically significant effect in
the short run while there was no any long run relationship between the two target variables.
Based this finding attracting more FDI inflow to the agriculture especially in those sub sectors that contribute to food supply in any possible way was recommended to address the
financial and technological gap in the agriculture sector of Ethiopia.
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Keywords
Direct Investment, Performance of Agricultural Sector, Ethiopia