The Impact of Foreign Direct Investment in Ethiopia Economic Development: In Case of Negative and Positive Floricultural Externality in Oromia Region

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Addis Ababa University


Scholars have long debated the impact of foreign investment on the economies of least developed countries. Many argue that foreign investment is beneficial for the investment receiving country (host). On the other hand, others argue that dependence on foreign capital is detrimental. The crucial role of FDI is presented in terms of enhancing capital formation, Export, linkage, technology transfer, growth and thereby curing development problems. This has led to the development of several theoretical and empirical literatures studies, and conversely, to the prevalence of mixed empirical evidence. With this in mind, this study attempts to add to the body of empirical evidence fueling the debate as to whether FDI in floriculture has positive influence on economic development or not. The objective of the study is to theoretically and empirically investigate and quantify the relationship between FDI and economic development. Economic development in this study is measured in terms of real GDP growth, export, and GFCF as FDI is said to affect economic development through these channels. The study employed causal research design. Is a design which attempts to identify the extent and nature of cause-and-effect relationships, the researcher used convenience sampling method to select the sample for the study. It is the Non-probability samples that are unrestricted. The analysis conducted provides evidence that there is a positive and significant relationship between FDI and real GDP growth, a moderate positive association between export performance and FDI, and a negative and insignificant association between FDI and technology transfer and GFCF in Ethiopia. However, investments entail negative impacts particularly on the local communities, who see their livelihood hampered by flower farm land acquisitions& small payment employee salary. Investment project has no significant social benefits to the local communities, as measured by technological transfer, employment opportunity, crop production and local infrastructure development.


A thesis submitted to the department of accounting and Finance (A.A.U) in partial fulfillment for the requirement of The degree of Master of Science in accounting & finance


Economic development, Foreign Direct Investment, Floricultural externality