Determinants of Foreign Direct Investment in Ethiopia
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Date
2023-06
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Addis Ababa University
Abstract
The study examines determinants of FDI in the Ethiopian from 1992-2022 using annual time series secondary data. The sectorial distribution of FDI, trends and the performance of FDI across sectors and sub were also analyzed. In the last three decades the performance of FDI has been fluctuated. Industrial sector was in the upper hand in terms of the absorbing the line share of FDI inflow in Ethiopia. ARDL model was utilized to test the long and short run relationships between dependent and independent variables. Among seven explanatory variables government spending, human capital real effective exchange rate and inflation squared were significant influencer of FDI in the long run in their respective 1%, 5% and 10% level of significance. However human capital as proxied by secondary school enrolment has a reversal effect in the long run and the short run. In the long run human capital has a positive influence, but in the short run it has negative effect. While domestic investment negatively affects FDI in the short run. Therefore, it is recommended that the government work more to increase the implementation and operation of the FDI. The governments should also provide policy privilege in some industrial sub sectors like electricity and mining, and in the services sector particularly in education sub sector. Policy makers and the government should consider the impacts of government expenditure, exchange rate and human development in affecting FDI through their channels