Determinants Of Foreign Direct Investment Inflows In Ethiopia

The study was carried out to establish the possible factors that determine the inflow ofrnForeign Direct Investment into Ethiopia. In this study, I used secondary time series datarnsample from 1992 to 2014. The Ordinary Least Squares (OLS) estimation is used and therntime series properties of the variables were examined in the process. It first tests for unitrnroot using the Augmented Dickey Fuller (ADF) test. The ARDL technique wasrnemployed to derive the long-run relationship. The ARDL model, however, failed tornsupport any long-term relationships between FDI and each explanatory variable. Thernresult of short run dynamic model shows that financial development and market sizernsignificantly and negatively affects the inflow of FDI. Trade openness exert positivernrelationship with FDI and significant at 10% significant level. Both Inflation andrnexternal debit affect FDI negatively but insignificant, and infrastructure developmentrnpositively affects but insignificant FDI. From a policy point of view, the results suggestrnthat, to promote FDI, Ethiopia should develop and introduce policies that increase thernlevel of trade openness.rnKey Words: FDI in Ethiopia, OLS, Secondary time series data, Time Series properties,rnADF Test, and ARDL Technique

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