Biblio

This paper analyzed trends of investment (comprising foreign direct investment, domestic private investment, and government investment) and its effect on economic growth in Ethiopia. Using multivariate regression we tested the impact of investment on economic growth in the country from 1992/93 to 2005/06. We first examined the effects of real effective exchange rate, foreign debt, government expenditure, and inflation on foreign direct investment. Second, we checked effects of government investment, terms of trade, foreign direct investment, private domestic investment, real effective exchange rate and inflation on economic growth. In both cases we found foreign debt affecting foreign direct investment and economic growth significantly at 1% and 10% level respectively. In the second equation we found foreign direct investment and real effective exchange rate robust in affecting economic growth of Ethiopia at 1 % level. Private investment contributed considerable to the economic growth of the country. The finding draws attention on reducing foreign debt, harnessing real effective exchange rate, and enhancing FDI inflow into the country, including domestic private, with the view to attain sustainable economic growth and development.