Международный журнал экономики и менеджмента

The Impact of Foreign Direct Investment (FDI) on Export Growth: Evidence from Ethiopia

Abstract

Yohannes Kumie Mekuriaw

This study attempts to examine the impact of foreign direct investment on export growth in Ethiopia over the period 1991-2016. In order to achieve the stated objectives, we separate the effects of FDI into supply capacity-increasing effects and FDI specific effects and estimated by using Engle Granger two step procedures of cointegration and error correction model. Accordingly, the result shows that a FDI inflow has supply-increasing and positive FDI-specific effects on export growth in the long run. The error correction modeling approach found that the coefficient of error term has a correct sign (-0.67) and statistically significant at 5 percent level. This means that export converges to its long run equilibrium value at the speed of 67 percent per annum. The result also found a positive FDI-specific effect in the short run. This revealed that specific efforts aimed at attracting further FDI would be justified. Therefore, to increase export growth, government should attract inward FDI by providing special incentives to foreign firms and designing other appropriate polices and reforms, devaluated birr (on a real trade-weighted basis) against foreign currency, boosting potential output and expanding exports destinations.