Motives of Foreign Direct Investment (FDI) in Ethiopia: An Empirical Analysis

International Journal of Commerce and Finance, 2020

12 Pages Posted: 4 Jun 2020

See all articles by Abdu Seid Ali

Abdu Seid Ali

Maxbridge Education and Development

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2020

Abstract

The central aim of this paper is to investigate the major motives of inward FDI to Ethiopia from 1992-2015. Various economic and financial variables were taken into consideration to assess the relationship between FDI and its motivational factors. Ordinary Least Square method was applied to estimate the association, while Johansen’s co-integration test was employed to examine the combination, and Vector Auto-regressive (VAR) model was used to check whether there is a long run relationship between FDI and explanatory variables. The statistical results show that there is positive and significant relationship between FDI and market size, trade openness, exchange rate and financial freedom whereas inflation had negative and significant association with FDI. However, investment freedom and economic globalization indicated an insignificant relation. Even though all variables jointly affect FDI in the long run, the VAR result didn’t reveal any long term relationship between FDI and its motivational factors individually.

Keywords: FDI, motives, Ethiopia, VAR model, OLS regression method

Suggested Citation

Ali, Abdu Seid, Motives of Foreign Direct Investment (FDI) in Ethiopia: An Empirical Analysis (May 1, 2020). International Journal of Commerce and Finance, 2020, Available at SSRN: https://ssrn.com/abstract=3594944

Abdu Seid Ali (Contact Author)

Maxbridge Education and Development ( email )

Wollo Sefer, Garad City Center
10th Floor
Addis Ababa, Ādīs Ābeba 1000
Ethiopia

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