Impact of Foreign Direct Investment on Economic Growth in Ethiopia

Abstract

The aim of the study is to investigate the Impact of Foreign Direct Investment on economic growth in Ethiopia by using annual time series data from the periods of 1982 to 2018. To achieve this objective the Descriptive and Econometric analysis were processed. The Ordinary Least square (OLS) method approach was employed to assess the model in the long run. The empirical results points out that as foreign direct investment has a positive and significant impact on the economic growth of Ethiopia. Beside this other variables such as gross capital formation, gross domestic saving and infrastructural level also have positive and significant contribution on the economic growth and enhance the growth of the country. Error-correction model (ECM) has been used to support the existence of a stable long-term relationship and confirm a deviation from the long- term equilibrium. The finding of error-correction model revealed that there was a deviation of the actual growth of the country from its equilibrium value that eliminated every years and indicates a short run deviation of growth from the long run equilibrium. In doing so, the Diagnostic and Unit root tests were conducted to guard the model from spurious results. Based on the finding of the study the researcher recommended that all concerning bodies to be utilized properly and wisely the opportunity of foreign direct investment out comes as it continues to increase the economic growth and motivate them as they enter in to the country for investment. Keywords: