| Abstract: | This study deals with identifying the determinants of foreign direct investment inflow into
Ethiopia for the period of 1974 to 2012. The study used single regression equation model for
testing the formulated hypothesis of each independent variable and multiple linear regression
models are also used for analyzing the impact of all independent variable on foreign direct
investment inflows. The main contribution and challenges of foreign direct investment to the
country economic development has also evaluated. The existing government incentive
directed towards foreign direct investment activities were examined and there is the Council
of Ministers Regulations No.84/2003, as amended in 2008, which specifies the areas of
investment eligible for investment incentives. The variables used in this study are trade
openness, gross domestic product per capita, telephone line (per 1,000 people), rate of adult
illiteracy, inflation rate, exchange rate, government expenditure, labour force participation
rate, gross fixed capital formation and liberalization using dummy variable are the
independent variables while foreign direct investment as a percentage of GDP is the
dependent variable. The study findings show that trade openness, export, gross fixed capital
formation, exchange rate, availability of skilled human capital, major improvements in
infrastructure and trade liberalization are the most significant determinant of foreign direct
investment inflow into Ethiopia. On the other hand, rate of adult illiteracy have negative
impact on inflow of FDI. |
