This thesis examines the relationship between foreign capital inflows and economic growth in Ethiopia over the period from 1981 to 2014. In particular, the real GDP per capita as a function of foreign aid, foreign direct investment and other foreign capital inflows (remittances and external debt) were investigated. The ARDL approach was applied to explain the long run and short run effect of explanatory variables on the dependent variable. The result reveals that the flow of foreign aid has a negative effect on economic growth both in long run and short run. This is mainly because the existence of poor institutional arrangement and the funds are not always connected to the productive sectors. Similarly, the long run relationship between the flow of foreign direct investment and the economic growth is negative. The possible explanation for this negative effect is due to inadequate basic infrastructures and poor institutional quality in the country. However, the long run and short run effect of other foreign capital inflows and the short run effect of foreign direct investment are found to be insignificant in affecting real GDP per capita. In addition, the causality test result indicates that there is a unidirectional causal relationship from official foreign aid to real GDP per capita and bidirectional causal relationship between foreign direct investment and real GDP per capita, but there is no any causal relationship between other foreign capital inflows and real GDP per capita in Ethiopia. Thus, the study suggests that the government has to ensure that the capital inflows are linked to the productive sectors to optimize the benefits of capital inflows. Moreover, the government has to pursue policy device to mobilize domestic resources and to reduce over-reliance on capital inflows.
| Identifer | oai:union.ndltd.org:nusl.cz/oai:invenio.nusl.cz:430072 |
| Date | January 2017 |
| Creators | Lalisho, Admasu |
| Source Sets | Czech ETDs |
| Language | English |
| Detected Language | English |
| Type | info:eu-repo/semantics/masterThesis |
| Rights | info:eu-repo/semantics/restrictedAccess |
Page generated in 0.002 seconds