THE IMPACT OF FOREIGN CAPITAL INFLOWS ON ECONOMIC GROWTH IN ETHIOPIA

Abstract

This study analyzes the effect of Foreign Capital Inflow (FCI) on the economic growth in Ethiopia for the period 1974 to 2009 E.C. Empirical analysis has been performed by using Johansen Maximum likelihood method. The main result shows that foreign aid has a significant and positive effect on economic growth in the long run as well as in the short run The net Foreign direct investment has negative impact on economic growth in both long and short run where as In the context of policy recommendations, it is clear that foreign aid contributes positively to economic growth both in the long run and short run. So, Ethiopia should focus on aid for the sake of economic growth. In addition, attention should be given in improving the political environment so as to raise the aggregate investment