DETERMINANTS OF FOREIGN DIRECT INVESTMENT IN ETHIOPIA: A TIME SERIES ANALYSIS BETWEEN 1992 - 2016

Abstract

This paper aimed at investigating the factors determining FDI in the Ethiopia economy for the period of 1992−2016.Developing countries like Ethiopia follows liberalized trade and tries to create a convenient environment for foreign investors by developing policies and regulations to attract Foreign Direct Investment (FDI).The study gives an extensive look at the theoretical and empirical analysis to establish the main determining factors of FDI. The objective of the study is to asses the trend and factors determining FDI in Ethiopia economy. hypothesis were formulated and multiple linear regression model is used for analyzing impact of all independent variables on Foreign Direct Investment inflow. The variables used in this study are infrastructure, market size, inflation rate and exchange rate as independent variables and Foreign Direct Investment as dependent variable. Also the trend of each variables within the given period of time has been shown using simple linear regression. The result showed that Market size and Exchange rate are the most significant determinant of FDI in flow in Ethiopia. And Infrastructure and Inflation rate have insignificant. The study also found that having an increasing trend ,the pattern of FDI inflow in Ethiopia is very unstable.