Determinents of foreign direct investment in Ethiopia: A time series analysis

ABSTRACT DETERMINENTS OF FOREIGN DIRECT INVESTMENT IN ETHIOPIA: A TIME SERIES ANALYSIS Abdulaziz Abdulkadir Jama M.A. Thesis, Department of International Trade and Marketing Supervisor: Assoc. Prof.Dr. Mustafa METE June 2019 57 pages This study attempts to examine the short run (SR) and Long run (LR) determinant of Foreign Direct Investment (FDI) in Ethiopia in the period between 1988 and 2018. To this end, the study reviewed the theoretical explanations of the determinants of foreign direct investment, and the study reviewed the relevant empirical literature focusing on the determinants of foreign direct investments in the context of developing countries. In Ethiopia from the year of 1992 onwards there has been some measure of liberalization of trade and Ethiopia's transition to market oriented economy has started to improve the FDI. To conduct this study Real GDP, Inflation, trade openness, government expenditure, infrastructure development and Human Capital are the variables included in this research. The study adopted an econometric analysis technique by using Autoregressive Distributed Lag Model (ARDLM). Both in long- run and shot run estimates, infrastructure development and Human Capital has positive impact and statistically significant to FDI in Ethiopia. Inflation rate has also negative sign and statistically significant to FDI in Ethiopia. In long run Real GDP growth rate is found to be statistically significant but negative coefficient to FDI. As the stated in the policy recommendation the government has to improve infrastructure and human capital to attract foreign investors to the country. To solve the effect of inflation the government has to take some measures to stabilize macroeconomic stability of the country. Political stability of the country should have to be given a priority to get an environment where foreign investors can feel comfortable for their investment. Key words: Determinant, Ethiopia, FDI, Real GDP, ARDL model