Paramountcy of Economic Environment to the Performance of Manufacturing Sector: A Case of Ethiopia

Abstract

The objective of this study is to analyze the association of the economic factors, notably government capital expenditures, nominal foreign exchange rate change, foreign currency reserve, FDI stocks, and market openness with the growth on manufacturing sector. To analyze the study, correlation test were conducted by taking time series economic data during 2004 to 2014.   The detail analysis confirmed that GDP per capita, flow of foreign direct investment and public capital investment have robust positive relation with the manufacturing sector outcome. On the other hand, foreign currency reserve, and nominal foreign exchange rate have shown weak positive link to the outcome of manufacturing sector.  Surprisingly, market openness was linked negatively to the outcome of manufacturing sector.We suggest that the policy makers need to work to enhance the GDP per capita, assign more public finance to capital budget that help to improve the infrastructural facilities  and create friendly investment climate to  pull both domestic and   foreign investment so as to promote the outcome of manufacturing sector and industrialization.

Keywords: capital expenditures, nominal foreign exchange rate, foreign exchange reserve, market openness and manufacturing sector