Impact of Foreign Direct Investment on Economic Growth in Ethiopia

Urgessa Firomsa Fite

doi:10.11648/j.ajtab.20200604.14

Abstract

The aim of the study is to investigate the Impact of Foreign Direct Investment on economic growth in Ethiopia by using annual time series data from the periods of 1982 to 2018. To achieve this objective the Descriptive and Econometric analysis were processed. The Ordinary Least square (OLS) method approach was employed to assess the model in the long run. The empirical results points out that as foreign direct investment has a positive and significant impact on the economic growth of Ethiopia. Beside this other variables such as gross capital formation, gross domestic saving and infrastructural level also have positive and significant contribution on the economic growth and enhance the growth of the country. Error-correction model (ECM) has been used to support the existence of a stable long-term relationship and confirm a deviation from the long-term equilibrium. The finding of error-correction model revealed that there was a deviation of the actual growth of the country from its equilibrium value that eliminated every years and indicates a short run deviation of growth from the long run equilibrium. In doing so, the Diagnostic and Unit root tests were conducted to guard the model from spurious results. Based on the finding of the study the researcher recommended that all concerning bodies to be utilized properly and wisely the opportunity of foreign direct investment out comes as it continues to increase the economic growth and motivate them as they enter in to the country for investment.

Highlights

Foreign direct investment is one of the key economic features of the modern globalized world
There are some studies done on the impact of FDI on economic growth of Ethiopia. From those [7] studied the impact of foreign direct investment on the economic growth in Ethiopia with the inflation rate trade balance, foreign direct investment, government expenditure and the findings show that the foreign direct investment has positive impact on the economic growth and statistically insignificant
The type of data used in this study was secondary time series data that was collected from MOFEC (Minister of Finance and Economic Corporation of Ethiopia) and National Bank of Ethiopia (NBE) and Ethiopian Central Statistical Authority (ECSA) for this study

Summary

Introduction

Foreign direct investment is one of the key economic features of the modern globalized world. It plays an important role in economic growth. It is an increasingly important channel for resource flows between the industrial and developing countries. Given the capital deficient nature of least developed countries and the benefits accruable from these activities, and it is essential for growth and development. It affects economic growth of developing countries positively through transfer of capital, know-how, and technology [6]

Methods

Results

Conclusion