The Impact of FDI on Industrialization in Ethiopia

Abstract

The Foreign Direct Investment has been recognized one of the main tools that can drive the host country to achieve industrialization due to multiple roles of bringing capital investment, technology, and skills, which are vital, the industrialization process.The motivation behind this study is to research the effect of Foreign Direct Investment inflow Industrialization in Ethiopia, utilizing the time series data from 1992-2017 and employing the Vector Autoregressive model (VECM). The result of the Johanson cointegration test demonstrated that there exists a longrun equilibrium relationship between the variables. Moreover, the outcome of VECM for Long-Run analysis shown that FDI has a positive impact and significant on Industrialization while the result of the short-run analysis showed that the FDI has insignificant but positive in impact on Industrialization, which means that the FDI inflows have a significant impact on Ethiopia's industrialization in the end. Similarly, the variance decomposition outcome reveals the impact FDI in the short-run is not too significant, but its impact increases in the long -run. Therefore, this study recommends that the government to give a suitable strategy and policies, which would give the first priority to attract more FDI and associate with the industrialization, process that ongoing on in the country.

Digital de-industrialization, global value chains, and structural transformation: Empirical evidence from low- and middle-income countries

“…Foreign direct investment (FDI): we use inward FDI flows, as a share of GDP, to control for the impact of FDI on a structural transformant variable. The impact of FDI on ST is ambiguous; studies by Samouel and Aram (2016) for Africa, Jie and Shamshedin (2019) for Ethiopia, and Muhlen and Escobar (2020) and Thirion (2020) for Mexico find that FDI enables the reallocation of labour effectively from the primary to the industrial sector, leading to industrialization. Similarly, for 44 developing countries and four newly industrialized economies, Emako et al (2022) find that FDI boosts overall labour productivity by facilitating both structural change and within-sector labour productivity.…”

Foreign Direct Investment and Economic Growth in Africa: Another Look from the WAEMU Region

“…The first vein of the literature finds that FDI positively influences economic growth 1 . Studies supporting this view include Berthélemy and Demurger (2000), Zhang (2001), Agrawal and Khan (2011), Bayar (2014), Nguyen (2017), Dinh et al (2019), andSarker andKhan (2020) for Asian economies; Irandoust (2001) and Moudatsou (2003) for European countries; Al-Iriani (2007) for Middle East economies; and Adamu and Oriakhi (2013), Shitu (2018), and Jie and Shamshedin (2019) for African countries. Moreover, some studies even find a bidirectional causality between FDI inflows and economic growth, supporting a strong relationship between both variables (Al-Iriani, 2007;Gursoy et al, 2013).…”

Role of imported raw materials in the performance of inward foreign direct investments in Ethiopia

“…In 2016, the Ethiopian government announced the new five-year economic plan, known as the Second Growth Transformation Plan (GTP II). Ethiopia aims to be a middle-income country and one of the leading manufacturing hubs in Africa by 2025 (Jie and Shamshedin, 2019). The government is eager to generate foreign currency income through exports.…”