Analysis of Host Country Characteristics That Determine Foreign Direct Investment Inflow: The Case of Ethiopia (Time Series Data Analysis From 1992 - 2021)
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Date
2023-06-03
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A.A.U
Abstract
This research undertaking attempted to identify host country characteristics that determine
Foreign Direct Investment (FDI) inflow to Ethiopia by analyzing time series data that covered
three decades (1992-2021). Data was obtained from World Bank’s World Development
Indicators. The theoretical and empirical review was conducted and market size,
macroeconomic stability, human capital, level of infrastructure, trade openness, and financial
health were identified as factors that are most associated with FDI inflow to Ethiopia and
developing nations. An autoregressive distributed lag (ARDL) model analyses was conducted on
these variables to identify their impact on Ethiopia’s FDI inflow. The analyses results indicated
that FDI inflow to Ethiopia is positively and significantly impacted by level of infrastructure,
human capital development, and higher level of external debt (lower level of financial health).
The result also indicated that high level of inflation rate (measure of the country’s
macroeconomic stability) significantly and negatively affects FDI inflow into the country. Based
on these findings of the study, relevant policy measures have been recommended.
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Keywords
FDI, FDI Determinants, Time Series, Autoregressive Distributed Lag