Journal of
Economics and International Finance

  • Abbreviation: J. Econ. Int. Finance
  • Language: English
  • ISSN: 2006-9812
  • DOI: 10.5897/JEIF
  • Start Year: 2009
  • Published Articles: 350

Article in Press

Exploring the Linkage and Impact of Foreign Direct Investment and Economic Growth in Ethiopia: (Evidence from ARDL model)

Workenh Sime Workenh Eshatuu

  •  Received: 06 December 2018
  •  Accepted: 22 January 2019
The common question for many economists are why countries growth at different rates? Leaders and policy makers highly believe that Foreign Direct Investment is one of the weapons for economic growth of a nation. However, existing empirical researches didn’t agree on the impact of Foreign Direct Investment on economic growth. The main purpose of this study is to check the existence of the long run association and causality between Foreign Direct investment and Economic Growth as well as to analyze the short run and the long run impact of Foreign Direct Investment on economic growth from 1995-2015. The main sources of the data were Ethiopian Investment Agency, the National Bank of Ethiopia and World Bank data base. To answer the basic research questions researcher used Johannes, VEC and ARDL modeling approaches. According to the Johannes model there is a long run association. From Vector Error Correction model, causality is unidirectional from economic growth towards Foreign Direct Investment. ARDL model shows that in the long run the impact of economic growth on Foreign Direct Investment is insignificant. Since the estimation result from ARDL model revealed that in the short run economic growth has positive and statistically significant impact in terms of attracting Foreign Direct Investment in the country; it is recommendable for policy and decision makers of the country to design a mechanism to sustain the positive impact of economic growth in term of attracting Foreign Direct Investment in Ethiopia

Keywords: ARDL model, Foreign Direct Investment, Economic Growth