The Link between Foreign Direct Investment and Economic Growth in Ethiopia

Abstract

Foreign direct investment plays an important role in economic growth. It has a great importance by transferring technologies and establishing marketing and procuring network for efficient production and sales internationally. It affects Ethiopian economic growth positively or directly. Therefore, it can be generally viewed as an engine for domestic country economic growth. To analyze the relationship that exists between foreign direct investment and economic growth, OLS estimation technique is used. The data set comprises of annual time series data from 1981 to 2010 (i.e. for 30 year data). Foreign direct investment has shown some significance level since 1992. Before this time, the government of Ethiopia did not give an incentive for foreign investors. Due to this fact, the role of FDI on Economic growth was not much. But after the present government came to power, the government encourages foreign investors and as a result the share of FDI on GDP has increased. Accordingly, foreign direct investment and economic growth are positively linked.