IDEAS home Printed from https://ideas.repec.org/a/spr/jecstr/v9y2020i1d10.1186_s40008-020-00211-7.html
   My bibliography  Save this article

Ethiopia’s FDI inflow from India and China: analysis of trends and determinants

Author

Listed:
  • Degele Ergano

    (Andhra University
    Hawassa University)

  • K. Rambabu

    (Andhra University)

Abstract

This study analyzes the trends and determinants of FDI inflow to Ethiopia from India and China. It is based on panel data of 2 decades (1997–2016). It employs a gravity model approach and fixed effects estimation technique to identify factors governing the flow of FDI to Ethiopia. Factors affecting the flow of Indian FDI to Ethiopia include Ethiopia’s trade with India, India’s population size, GDP of Ethiopia, GDP PC of India, real interest rate, credit access and FDI openness in Ethiopia. Similarly, factors governing Chinese FDI flow to Ethiopia include Ethiopia’s GDP growth, Ethiopia’s trade with China, FDI openness and secondary school enrolment. Government expenditure in the host country reduces China’s and India’s FDI inflow. The traditional explanatory variable, a resource rent, is not found significant in explaining FDI in flow from China and India. The FDI inflow from India and China showed an increasing trend with an average rate of 82% and 202%, respectively, during the two-decade period. But the overall trend for both partner countries showed fluctuation across years. We can conclude that FDI from India is responsive to macroeconomic variables such as OER, real interest rate and liberalization measures such as trade openness in Ethiopia. FDI and trade flows from China are positively related to one another and cheap labour is an important attraction factor for Chinese FDI inflow. Policy makers in Ethiopia can focus on macroeconomic reform in case of the country’s relation with India whereas they focus on maintaining cheap labour cost, GDP growth and trade transactions with China.

Suggested Citation

  • Degele Ergano & K. Rambabu, 2020. "Ethiopia’s FDI inflow from India and China: analysis of trends and determinants," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 9(1), pages 1-20, December.
    • Handle: RePEc:spr:jecstr:v:9:y:2020:i:1:d:10.1186_s40008-020-00211-7
    DOI: 10.1186/s40008-020-00211-7
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1186/s40008-020-00211-7
    File Function: Abstract
    Download Restriction: no
    File URL: https://libkey.io/10.1186/s40008-020-00211-7?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Eaton, Jonathan & Kortum, Samuel, 1997. "Engines of growth: Domestic and foreign sources of innovation," Japan and the World Economy, Elsevier, vol. 9(2), pages 235-259, May.
    2. Bergstrand, Jeffrey H, 1989. "The Generalized Gravity Equation, Monopolistic Competition, and the Factor-Proportions Theory in International Trade," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 143-153, February.
    3. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
    4. Mohammad Salahuddin & Md. Rabiul Islam, 2008. "Factors affecting investment in developing countries:a panel data study," Journal of Developing Areas, Tennessee State University, College of Business, vol. 42(1), pages 21-37, September.
    5. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-116, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Muhammad Zubair Chishti, 2023. "COVID-19 and FDI nexus in Pakistan: fresh evidence from QARDL and time-varying casualty techniques," Future Business Journal, Springer, vol. 9(1), pages 1-18, December.
    2. Morgan, Stephen & Farris, Jarrad & Johnson, Michael E., 2022. "Foreign Direct Investment in Africa: Recent Trends Leading up to the African Continental Free Trade Area (AfCFTA)," USDA Miscellaneous 329077, United States Department of Agriculture.
    3. Arup Kumar Chattopadhyay & Debdas Rakshit & Payel Chatterjee & Ananya Paul, 2022. "Trends and Determinants of FDI with Implications of COVID-19 in BRICS," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 14(1), pages 43-59, January.
    4. Sandeep Kaur & Pushp Kumar & Mohd Arshad Ansari, 2024. "An analysis of Indian FDI inflows through an augmented gravity model: exploring new insights," International Economics and Economic Policy, Springer, vol. 21(2), pages 435-455, May.
    5. Logan Cochrane & Eric P. H. Li & Melisew Dejene & M. Mustahid Husain, 2024. "Why foreign agricultural investment fails? Five lessons from Ethiopia," Journal of International Development, John Wiley & Sons, Ltd., vol. 36(1), pages 541-558, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. David Law & Murat Genç & John Bryant, 2013. "Trade, Diaspora and Migration to New Zealand," The World Economy, Wiley Blackwell, vol. 36(5), pages 582-606, May.
    2. Marie M Stack & Rob Ackrill & Martin Bliss, 2019. "Sugar trade and the role of historical colonial linkages," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 46(1), pages 79-108.
    3. Cipollina, Maria & Salvatici, Luca, 2007. "EU and developing countries: an analysis of preferential margins on agricultural trade flows," Working Papers 7219, TRADEAG - Agricultural Trade Agreements.
    4. Valeria Costantini & Francesco Crespi, 2013. "Public policies for a sustainable energy sector: regulation, diversity and fostering of innovation," Journal of Evolutionary Economics, Springer, vol. 23(2), pages 401-429, April.
    5. James E. Anderson, 2011. "The Gravity Model," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 133-160, September.
    6. Alberto Salvo, 2010. "Trade flows in a spatial oligopoly: gravity fits well, but what does it explain?," Canadian Journal of Economics, Canadian Economics Association, vol. 43(1), pages 63-96, February.
    7. Anderson, James E. & Yotov, Yoto V., 2020. "Short run gravity," Journal of International Economics, Elsevier, vol. 126(C).
    8. Haq, Zahoor Ul & Meilke, Karl D. & Cranfield, John A.L., 2011. "The Gravity Model and the Problem of Zero's in Agrifood Trade," Working Papers 116851, Canadian Agricultural Trade Policy Research Network.
    9. Raphaël Chiappini, 2016. "Do overseas investments create or replace trade? New insights from a macro-sectoral study on Japan," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 25(3), pages 403-425, June.
    10. Kareem, Fatima Olanike & Martinez-Zarzoso, Inmaculada & Brümmer, Bernhard, 2016. "Fitting the Gravity Model when Zero Trade Flows are Frequent: a Comparison of Estimation Techniques using Africa's Trade Data," GlobalFood Discussion Papers 230588, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    11. Felix Groba, 2014. "Determinants of trade with solar energy technology components: evidence on the porter hypothesis?," Applied Economics, Taylor & Francis Journals, vol. 46(5), pages 503-526, February.
    12. Mehmet Huseyin Bilgin & Giray Gozgor & Chi Keung Marco Lau, 2017. "Institutions and gravity model: the role of political economy and corporate governance," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 7(3), pages 421-436, December.
    13. Salvador Gil-Pareja & Rafael Llorca-Vivero & José Antonio Martínez-Serrano, 2017. "Does the Degree of Development Matter in the Impact of Banking Crises on International Trade?," Review of Development Economics, Wiley Blackwell, vol. 21(3), pages 829-848, August.
    14. Peter Egger & Douglas Nelson, 2011. "How Bad Is Antidumping? Evidence from Panel Data," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1374-1390, November.
    15. Muhammad Ullah & Kazuo Inaba, 2014. "Liberalization and FDI Performance: Evidence from ASEAN and SAFTA Member Countries," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 3(1), pages 1-24, December.
    16. Stanislav Cernosa, 2011. "Openness to Trade, Migration and Foreign Direct Investments of the EU," WIFO Working Papers 401, WIFO.
    17. Sylvain Petit & Neelu Seetaram, 2019. "Measuring The Effect Of Revealed Cultural Preferences On Measuring The Effect Of Revealed Cultural Preferences On Tourism Exports," Post-Print hal-01924443, HAL.
    18. Michele Fratianni & Francesco Marchionne, 2012. "Trade Costs and Economic Development," Economic Geography, Clark University, vol. 88(2), pages 137-163, April.
    19. Doganay, Seda Meyveci & Sayek, Selin & Taskin, Fatma, 2014. "Is environmental efficiency trade inducing or trade hindering?," Energy Economics, Elsevier, vol. 44(C), pages 340-349.
    20. M. Bruna Zolin & Utai Uprasen, 2018. "Trade creation and diversion: effects of EU enlargement on agricultural and food products and selected Asian countries," Asia Europe Journal, Springer, vol. 16(4), pages 351-373, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:jecstr:v:9:y:2020:i:1:d:10.1186_s40008-020-00211-7. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.