DETERMINANTS OF FOREIGN DIRECT INVESTMENT IN ETHIOPIA

Abstract

This paper tries to examine the determinants of foreign direct investment in Ethiopia. The study applies multiple linear regression model by using time series data that cover over period of 1992 to 2018 the time series data was collected from NBE and World Bank dataset and the data was analyzed using EViews 8. The variables used in the study were market size, inflation rate, exchange rate, and trade openness. The finding states that market size in the form of real GDP per capital and exchange rate have positive impacts on FDI while trade openness in the form of ratio of export to GDP and Inflation rate have negative impact on FDI in Ethiopia. On the other hand, from those variables market size and trade openness significant to FDI while inflation rate and exchange rate was insignificant to FDI.As per findings the recommendation also forwarded. The government better give attention to factors that boost domestic investment since it has been established by the study that the success focuses on creating conducive investment environment to attract more capital inflow. The domestic investment can attract or encourage foreign investor to invest in Ethiopia. Also, the government better focus on increasing export goods and service by minimizing transportation cost and create simple export system because it is vital for attract foreign direct investor in Ethiopia and foster foreign currency.