Graduate Program

Economics

Degree Name

Master of Arts (MA)

Semester of Degree Completion

Summer 2019

Thesis Director

Mukti P. Upadhyay

Thesis Committee Member

Ali R. Moshtagh

Thesis Committee Member

Teshome Abebe

Abstract

This study explores the impact of Foreign Direct Investments (FDI) on Ethiopia's export performance. The topic is motivated by the huge investment Government of Ethiopia is making to attract FDI and its optimistic view regarding the role of FDI in boosting export performance. The vector autoregressive model (VAR) has been adopted to estimate the long run causal relationship among exports, foreign direct investment and GDP. Results for the cointegration test show that there exists a long run equilibrium relationship among exports, FDI and GDP. The estimated Error Correction Model finds FDI negatively affecting exports with a two-year gap. Our findings suggest that Ethiopia may not be fully reaping the benefits of FDI, nor exploiting FDl's complementarity with domestic investments. The study suggests improvements of structural issues, as well as fixing the long and inefficient bureaucracy in supporting new investments with the set-up, production and exports. Investment in human capital development and reducing the anti-export bias are also suggested. As this study suffered from a lack of long term manufacturing-specific data, it recommends further studies to determine the direct impact of FDI and its spillover effects using additional years of complete dataset.

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