Debebe, Sisay (PhD)Eshete, Abebaw2022-03-082023-11-042022-03-082023-11-042021-01http://etd.aau.edu.et/handle/123456789/30492This study empirically studied the link between FDI (Foreign Direct Investment), domestic investment (private and public investment) and economic growth of Ethiopia for the period 1992 to 2019 by applying time series modelling and tests. ADF test for unit root result indicates all the variables are integrated of order one I (1), at their first differences. Johansen cointegration test shows the presence of cointegration among the variables in the long run. The long run estimates it indicated that domestic investment (private and public) and FDI have a positive relationship with economic growth, while, exchange rate was insignificant and negative relationship with economic growth of Ethiopia. Meanwhile, the Error Correction Term result indicates, the long run economic growth shock is adjusted (back to) equilibrium by 48% within a year. The pairwise Granger causality result showed economic growth Granger causes, FDI and vise-versa and there exist a bi-directional causality between FDI, exchange rate and economic growth. Impulse Response Function (IRF) indicates the response of economic growth to a unit standard deviation/shock/ on FDI, private investment, public investment and exchange rate were positive. Variance decomposition showed, the variability of economic growth fluctuation explained at the first period by itself and 73.7% shock explained in the second period, and 26.3% of shock is explained by FDI, exchange rate, private and public investment as a whole. Finally, as a policy implication the study recommends, government enhancement of private investment and FDI by removing of bottlenecks, such as volatility of exchange rate and creating fertile environment of investment in Ethiopia.en-USEconomic growthVECM, cointegrationFDIGranger causality EthiopiaThesis