Thesis on attracting direct foreign investment
Firms, sectors, or countries that are below certain thresholds in terms of human capital, financial development, or institutional quality are less likely to benefit from foreign direct investment.
The eastern coastal has rich resource in the transportation, openness, physical and human capital. This of course implies liberalization whereby the openness of the Ethiopian economy to the world economy would bring about the needed economic development through the stimulation of some variables i.
Foreign direct investment directly contributes to gross investment level.
What attracts foreign investors to a country
Foreign direct investment could crowd-out domestic private investors those who cannot compete with more efficient and technologically more superior MNCs and had operated under a heavily protected trade regime for a long time. The study on regional FDI divided the Chinese provinces in two subgroups: the eastern coastal area and the western hinterland. Normally the history of private sector in Ethiopia dates back to the reign of emperor Menelik II with acquisition of land, however it starts to develop during emperor Haile sillasie. It requires a favorable macro policy environment and specific policies and institutions aimed at attracting and directing foreign direct investment to key sectors in the economy thereby enhancing the contributions of investment of skills formation, technological change, competitiveness, and economic growth. In addition, Industrial organization theory states that foreign direct investment is global strategy of MNEs to advance monopoly power over each host country. Due to the successful reform, China has experienced a 30 year economic growth. African countries have moved to liberalize the investment environment, yet have not received large amount of foreign direct investment. Data and Methodology 7. Realizing the inadequacy of the domestic capital to finance investment needs, the country has opened several economic sectors to foreign investors especially after to have sustainable economic growth.
The hinterland economy is driven by the international trade, although the transportation resource in the hinterland is not as rich as ones in the eastern coast. Link between Foreign Direct Investment and Domestic Investment It is a plain fact that one thing might have a positive or negative impact on the other thing.
Since foreign direct investment affects growth through augmentation of the existing capital stock, it is also necessary to look to the interaction between foreign direct investment and its equivalent, domestic private investments.
However the impact of foreign direct investment on economic growth of host country, determined further by whether it crowd-in or crowd-out domestic investments Agosin,R and mayor, Teshome writes The government in the Monarchy regime from has provided incentives for foreign investors who involved in agricultural sector in the country.
Otherwise, foreign direct investment may be detrimental to economic growth in the long- run, if not in the short run. The geographic effect has been explore in two levels: national level and regional level.
Ways to attract foreign direct investment pdf
The above scenario becomes more pathetic when it realized that Ethiopia endowed with vast, substantial, and large untapped natural resources. By realizing the importance of foreign direct investment to the development of Ethiopian economy and the short comes of previous governments, FDRE introduced new foreign direct investment policy framework by designing various policies and reforms activities, and implemented to attract the foreign direct investment in the country. According to assumptions of cournot oligopolistic model, as explained by Teanravisitsagool foreign direct investment would completely crowd-out domestic investment if foreign and domestic firms are identical; and there is no spillover effect on domestic firms. History and Trend of Domestic Private Investment 4. However, due to misguided nationalized policy measures, the Military regime failed to attract more foreign direct investment in the country. Following a slowdown of international capital flows in the first half of the 20th century, foreign direct investment started to grow in the post-war period due to the need for reconstruction of countries around the world. Therefore answering the basic question that: Does the inflow of foreign direct investment in Ethiopia crowd-out domestic private investment or complement it? Link between Foreign Direct Investment and Domestic Investment It is a plain fact that one thing might have a positive or negative impact on the other thing. If foreign direct investment crowds-out domestic private investment the effect becomes back and forth even under the assumption of positive link between foreign direct investment and economic growth because the effect of domestic private investment on economic growth is positive and not questionable.
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