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Determinants of foreign direct investment in Ethiopia: an autoregressive distributed lag (ARDL) approach

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Author Affiliations

  • 1Department of Agricultural Economics, Haramaya University, Haramaya, Ethiopia
  • 2Department of Agricultural Economics, Haramaya University, Haramaya, Ethiopia

Res. J. Agriculture & Forestry Sci., Volume 10, Issue (4), Pages 14-20, October,8 (2022)

Abstract

Foreign Direct Investment plays enormous role in enhancing economic growth, level of employment and technology transfer. Hence, the country persuades the inflow of foreign direct investment mainly by picking up the investment climate and offering various incentive packages to foreign direct investors. However, the performance of foreign direct investment has been declined for the last two years and remained relatively low so far. Therefore, this paper aimed at analyzing the major factors that affect foreign direct investment in Ethiopia by using a 30 years' data ranging from 1989 to 2019. In order to analyze determinants of foreign direct investment, it used an Auto-Regressive Distributed lag (ARDL) model. The finding of the study revealed that real gross domestic product, domestic private investment and credit for private investment determines FDI in the long run while rate of inflation, domestic private investment and public investment determines it in the short run. Hence, besides, to have a bird eyes view on the above mentioned determinants of FDI; to bring sustainable growth, it is important to ensure stable macro-economic indicators and political environment that are the bench mark in building confidence for foreign private investors

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