The Determinants of Foreign Direct Investment in Ethiopia: A Co-Integrated VAR Approach
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Date
2016-06
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Addis Ababa University
Abstract
Developing countries around the world are competing to attract FDI in hope of its contribution to economic development. This increasing competition gives rise to interest in the performance of Ethiopia regarding FDI inflows, the measures being taken to increase these inflows as well as the current issues that deter the inflow. This paper gives an analysis of Foreign Direct Investment in Ethiopia by first observing the different policy reforms and by analyzing the sectorial and regional distribution of FDI as well as by looking at the different opportunities and challenges faced by foreigners interested in investing in the country. In addition, in this study different factors that determine the inflow of FDI to the country are analyzed. The study uses secondary data form1980-2014 collected from various national and international sources. The results show that FDI in Ethiopia is significantly and positively affected by human capital, exchange rate, domestic investment and GDP. In addition it is shown that while exports have a positive and significant impact on FDI, and FDI has a positive impact on export as well. With these findings the study recommends that the government should concentrate on stimulating the above macroeconomic variables and creating a hospitable environment for investment so as to increase the inflow FDI and fuel the Ethiopian economy.
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Foreign Direct Investment in Ethiopia