Factors Affecting FDI Flow in Ethiopia: An Empirical Investigation

Abstract

This paper examined the determinants of foreign direct investment in Ethiopia. Five variables including market size, level of trade openness, inflation rate, infrastructure, and human capital were used. Time-series data covering a 21-year period (1990-2011) were obtained from the World Bank and analyzed using multivariate ordinary least square regression. The findings show that level of trade openness and inflation rate of Ethiopia have had a significant impact on the flow of foreign direct investments to Ethiopia. No clear relationship was obtained for market size, infrastructure, and human capital.

Key word FDI, inflation rate, trade openness, human capital