The Impact of Foreign Direct Investment (FDI) on Ethiopia’s economic growth

Abstract

The study aims to investigate how FDI impacts the economic growth of Ethiopia. To investigate this major research problem, it sets four interrelated objectives. The first objective aims to investigate the pattern of FDI inflows to understand the trend of inflows across different regimes. The second objective focuses on determining the impact or relationship between FDI and economic growth. The third objective targets determining the causality relationship between the two; and the fourth objective gives policy recommendations based on the results and discussions in the study. The study pursues a quantitative approach to achieve the objectives. The four econometric models used comprise the Auto Regressive Distributed Lag (ARDL) co-integration technique; short run and long run ARDL models; and Toda-Yamamoto (TY) causality models. These models used time series data for the period 1970 to 2018 from UNCTAD (United Nations Conference on Trade and Development) and IMF (International Monetary Fund) sources for variables of GDP, FDI, Gross Fixed Capital Formation, Labour, Trade and Consumer Price Index (CPI). Before a co-integration test, unit root analysis is made on the variables and the result shows that all variables except FDI are I(1) data; whereas, FDI is I(0) data. The co-integration test also indicates long-run relationships among the variables. The long-run model result shows a negative relationship between FDI and economic growth. All variables are used in their logged forms. The TY model also shows the result of unidirectional causality running from FDI to economic growth in Ethiopia. The negative long-run relationship between FDI and economic growth casts doubt whether FDI has benefited the economic growth of Ethiopia. Policy recommendations are thus drawn to meet the fourth objective based on the results of the study to provide policy implications to reverse the situation and harness the benefits from FDI.

Thutopatlisiso eno e ikaeletse go sekaseka gore peeletso ya tlhamalalo ya boditšhaba (FDI) e ema jang kgolo ya ikonomi ya Ethiopia. Go sekaseka bothata jono jo bogolo jwa patlisiso , go beilwe maikemisetso a mane a a golaganang. Boikemisetso jwa ntlha bo ikaeletse go sekaseka paterone ya dikelelogare tsa FDI le go tlhaloganya mokgwa wa dikelelogare go kgabaganya dikarolo tse di farologaneng. Boikemisetso jwa bobedi bo totile go bona kamo kgotsa kgolagano magareng ga FDI le kgolo ya ikonomi. Boikemisetso jwa boraro bo amana le tlhomamiso ya kgolagano magareng ga bobedi; mme boikemisetso jwa bone bo neela dikatlenegiso tsa pholisi tse di ikaegileng ka dipholo le dipuisano mo thutopatlisisong. Thutopatlisiso e dirisa molebo o o lebelelang dipalopalo go fitlhelela maikemisetso. Dikao tse nne tsa ikonometeriki tse di dirisitsweng, di na le thekeniki ya tsenyeletsommogo ya Auto Regressive Distributed Lag (ARDL); dikao tsa ARDL tsa tsamaisokhutshwane le tsamaisotelele; le dikao tsa kgolagano tsa Toda-Yamamoto (TY). Dikao tseno di dirisitse data ya tatelano ya nako ya paka ya 1970 go ya go 2018 go tswa mo metsweding ya UNCTAD (United Nations Conference on Trade and Development) le IMF (International Monetary Fund) ya dipharologantsho tsa GDP, FDI, popego ya kapitale e e lolameng yotlhe, badiri, kgwebisano le tshupane ya ditlhotlhwa tsa badirisi (consumer price index (CPI)). Pele ga teko ya tsenyeletsommogo, go dirwa tokololo ya modi wa yuniti mo dipharologantshong, dipholo di bontsha gore dipharologantsho tsotlhe kwa ntle ga FDI ke data ya I(1); e le gore FDI ke data ya I(0). Teko ya tsenyeletsommogo e bontsha gape dikgolagano tsa tsamaisotelele magareng ga dipharologantsho. Dipholo tsa sekao sa tsamaisotelele di bontsha kgolagano e e sa siamang magareng ga FDI le kgolo ya ikonomi. Dipharologantsho tsotlhe di dirisitswe mo dipopegong tse di golagantsweng tsa tsona. Sekao sa TY se bontsha gape diponagalo tsa kgolagano ya ntlha e le nngwe e e tsamayang go tswa go FDI go ya kwa kgolong ya ikonomi ya Ethiopia. Kgolagano ya tsamaisotelele e e sa siamang magareng ga FDI le kgolo ya ikonomi e baka pelaelo ya gore a mme FDI e ungwetse kgolo ya ikonomi ya Ethiopia. Ka jalo, go dirilwe dikatlenegiso tsa pholisi go fitlhelela boikemisetso jwa bone go ikaegilwe ka dipholo tsa thutopatlisiso go tlamela ka dikakanyo tsa pholisi go fetola seemo le go laola maungo a FDI.