The Impact of AGOA Related Foreign Direct Investment Inflows on Employment in Sub-Saharan Africa: The Case Study of Ethiopia

Abstract

African Growth and Opportunity Act (AGOA) is a United States trade preference act that was signed into law in May 2000 as Trade and Development Act of 2000. One of the objectives of AGOA is to promote investment in Sub-Saharan African countries (SSA) and it’s believed that AGOA was able to create jobs through AGOA related foreign direct investment (FDI) in SSA (USITC, 2012). Therefore, the study primarily examines the employment effects of AGOA related FDI in Sub-Saharan African countries particularly in Ethiopia and to examine the extent to which FDI inflows under AGOA contribute to employment for SSA in general and Ethiopia in particular, the study applied linear regression model using time series data from 1990 to 2014. Consequently, the model result indicates that AGOA related FDI have negative effect on employment for SSA and it has insignificant effect on employment for Ethiopia at macro-level. It is suspected that AGOA related FDI may have engaged in more capital intensive and not in labor-intensive investments. Thus, the study recommends extending the program more than 10 years and simplifying the rules in order to attract quality investments that could generate more and steady jobs in beneficiary SSA countries.