The Nexus among Foreign Direct Investment, Capital Flight and Economic Growth: Evidence from Ethiopia.

ABSTRACT<br> The Thesis examined the nexus between foreign direct investment, capital flight, and economic growth in Ethiopia using time series data over the period 1990-2021. Data was taken from the International Monetary Fund (IMF) annual data and the statistical bulletin of National Bank of Ethiopia, National Bureau of Statistics of Ethiopia and the Ministry of Commerce, Ethiopia. Autoregressive Distributed Lag Model (ARDL) was used in analyzing the data. Furthermore, Augmented Dickey-Fuller Test was used to obtain the nexus between foreign direct investment, capital flight, and economic growth in Ethiopia. The result shows that foreign direct investment had a Negative impact on capital flight in the long run and a negative relationship in the short run. In addition, economic growth had a positive long-run relationship with capital flight. But there is no evidence that shows the relationship that stems from economic growth and capital flight to foreign direct investment; and relationships that line from foreign direct investment and capital flight towards economic growth.<br> Furthermore, reforms and conflict significantly increased capital flight in Ethiopia between 2010 and 2021.The study further found that the speed of adjustment, if the shock exists, towards the long run equilibrium is 11% out of the shock annually.<br> Based on the findings of this study; in the long-run the increasing of economic growth in Ethiopia facilitates the volume of capital flight to increase over the time which is against the theory and other empirical evidence. The study recommends reducing public investment to prioritize private sector development as a sustainable growth driver, enhancing government monitoring and incentives to combat corruption, and favoring domestic investment over foreign direct investment to minimize capital flight and strengthen the local economy