Abstract
The determinants of FDI include any host country’s situations that affects the inflow of FDI, like market size, the economic growth rate, real growth domestic product, infrastructure, natural resource, the political situation etc. In recent years, Ethiopia has started encouraging the inflow of FDI by improving the investment climate and by providing different incentive packages. The focus of this review is to identify the major determinants of foreign direct investment (FDI) in Ethiopia. The results show that the variables like real growth domestic product, liberalization, exchange rate devaluation and trade openness are significant and have positive correlation with the inflow of FDI in Ethiopia. On the other hand, variables like inflation, poor infrastructure; volatile and high lending interest rate has significant and negative association with the inflow of foreign direct investment. Finally, the study recommend possible intervention of the government through infrastructure development and formulation sound fiscal and monetary policies to control the negative impact of inflation, interest rate and other macro variables. Keywords: FDI, RGDP, Inflation, liberalization, interest rate, Ethiopia. DOI : 10.7176/DCS/9-1-04
Highlights
Ethiopia has managed to register double-digit economic growth over the past 13 years
The major objective of this work is, to review sample empirical studies conducted in Ethiopia and draw logical conclusion and recommendation
5.2 Conclusion and Recommendations Foreign direct investment (FDI) is an important source of investment in an economy
Summary
Ethiopia has managed to register double-digit economic growth over the past 13 years. This high growth has contributed to a sustained increase in per capita income and a decline in absolute poverty, as well as improvement in standards of living (MOFEC 2017). Foreign direct investment (FDI) remains a significant source of capital and income generating opportunities for least developed countries. This is especially true for Ethiopia that does not have enough domestic funds to finance huge investment projects. It is important for Ethiopia in transferring technological advancement for domestic enterprises, competitiveness and organizational forms, assist human capital formation, international trade integration and to create a more competitive business environment from abroad (Gelawdewos, 2015)
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