FOREIGN DIRECT INVESTMENT, HOST COUNTRY PRODUCTIVITY AND EXPORT: THE CASE OF U.S. AND JAPANESE MULTINATIONAL AFFILIATES

The literature on the transfer of technology from FDI to host country firms is growing rapidly. Most of the studies find that there are positive spillover effects from FDI flow to host country firms in advanced economies. The result for the case of FDI recipient developing economies is mixed. The purpose of this study is to analyze the role that foreign direct investment from the U.S. and Japan plays in affecting developing countries¡¯ productivity, and export. Trade and production dataset by industrial groups and disaggregated U.S. and Japanese FDI data are used to empirically test presence of spillover effects on labor productivity and export. The results of the study show that positive productivity effects from U.S. and Japanese FDI firms are not empirically supported for the case of sample developing countries. The presence of FDI firms from all source countries and the number of U.S. total FDI and U.S. manufacturing FDI firms increase exports of host countries to the rest of the world. On the other hand, productivity is enhanced by foreign portfolio investment, availability of skilled manpower, capital intensity of industries and the number of bilateral investment treaties signed by host countries. Official development assistance and official aid have significantly negative effect on host country productivity, value added and export.Foreign Direct Investment, Productivity, Developing Countries, USA, Japan

Anatomy Of Foreign Aid To Ethiopia: 1960-2003

The purpose of this study is to present a portrait of the foreign aid flow to Ethiopia during the 1960 to 2003 period. Since the launch of Marshal Plan after World War II, the flow of foreign aid has been seen as the panacea to overcome underdevelopment. Ethiopia is not an exception to this view, and Ethiopia is one of the recipients of foreign aid not only to provide emergency relief but also to support longterm economic development. This study shows the flow of aid to Ethiopia in terms of major donors (bilateral and multilateral), method of delivery, and major recipient sectors/purposes. The study attempts to answer the following questions: Which are the major donor countries? For what purposes has the aid been given? For which sectors has the country been receiving aid? Further, during the study period the country has twice experienced changes in government. How have the composition, donors, and purposes of aid changed with the changes of government? The paper attempts to present aid flows for the country’s three government regimes. The study will use detailed aid data collected from donors by the OECD and recently made available. This study does not attempt to link the flow of aid to the progress, economic or otherwise, that has ensued from the flow of aid.Foreign Aid, Ethiopia, Development

The Dynamics of Income Diversification in Ethiopia: Evidence from Panel data

Block and Webb (2001) in food policy address the issue of the dynamics of livelihood diversification in Ethiopia. Their study uses the ratio of per capita income derived from crops to the sum of all other incomes as an indicator of livelihood diversification for the years 1989 and 1994. Their study focuses only on drought-prone areas during the survey years. The aim of the present study is to explore further the demographic and economic determinants of the dynamics of income diversification using survey data. The data used in this study cover larger and more representative sample and was colleted from rural Ethiopia during 1994 and 1997 harvest years. This study investigates not only the determinants of participation and intensity of off-farm activities, but also factors that affect the dynamics between 1994 and 1997. The results of this study attempt to answer the question: to what extent initial conditions (for instance, asset holdings, production, and crop income) prompt households to diversify to off-farm activities overtime. The results show that participation in off-farm activities is mainly driven by demographic factors, whereas land and other asset ownership as well as crop production and income affect intensity of off-farm activities. The dynamic model results show that farm families who have initially diversified to more off-farm activities subsequently realized less income diversification. Families with more initial crop production from slack harvest season subsequently realized greater income from off-farm activities in 1997. The study also confirms that it is only during slack harvest season that off-farm and on-farm activities are complement each other.Dynamic Livelihood, Off-farm Income, Diversification, Ethiopia

Anatomy Of Foreign Aid To Ethiopia: 1960-2003

The purpose of this study is to present a portrait of the foreign aid flow to Ethiopia during the 1960 to 2003 period. Since the launch of Marshal Plan after World War II, the flow of foreign aid has been seen as the panacea to overcome underdevelopment. Ethiopia is not an exception to this view, and Ethiopia is one of the recipients of foreign aid not only to provide emergency relief but also to support longterm economic development. This study shows the flow of aid to Ethiopia in terms of major donors (bilateral and multilateral), method of delivery, and major recipient sectors/purposes. The study attempts to answer the following questions: Which are the major donor countries? For what purposes has the aid been given? For which sectors has the country been receiving aid? Further, during the study period the country has twice experienced changes in government. How have the composition, donors, and purposes of aid changed with the changes of government? The paper attempts to present aid flows for the country’s three government regimes. The study will use detailed aid data collected from donors by the OECD and recently made available. This study does not attempt to link the flow of aid to the progress, economic or otherwise, that has ensued from the flow of aid

Catch Me If You Can: Trade Mis-invoicing and Capital Flight in Ethiopia

With increased globalization comes increased opportunities to manipulate export and import invoices (trade mis-invoicing) as a vehicle to move capital unrecorded (and illegally) out of a country. Trade mis-invoicing, which is seemingly negligible in other parts of the world, is significant for developing countries in general and African countries in particular. This paper presents the extent of trade mis-invoicing and the resulting capital flight for the case of Ethiopia. Using commodity-group level trade flow data between Ethiopia and its trading partners, as well as disaggregated CIF-FOB ratios, this paper sheds light on commodity groups and trading partners that had significant impacts on trade mis-invoicing. Results show that previous studies reported underestimated trade mis-invoicing and capital flight figures from Ethiopia. I argue that underestimation was due to the exclusion of major trading partners (like China and India) and the use of fixed CIF-FOB ratios that don't reflect variations across commodity groups and trading partners. Results also show, for trade with only advanced countries, trade mis-invoicing has cost Ethiopia $6-35 billion between 2008 and 2016; for trade with emerging economies (including China and India), Ethiopia has lost$15 -78 billion to trade mis-invoicing during the same period. If we just take the sum of the lowest estimates of trade mis-invoicing, Ethiopia had lost over $20 billion due to trade mis-invoicing with all its trading partners during the study period. A handful of commodity groups vegetables, machinery, and transport equipment) has contributed to trade mis-invoicing in a significant way. The study also shows that India, United Arab Emirates (UAE), Finland, New Zealand, China (Hong Kong), Ireland, Australia, the US, Japan, and the Czech Republic tops the list of Ethiopia's trading partners with the highest share of trade mis-invoicing in total trade

The Dynamics of Income Diversification in Ethiopia: Evidence from Panel data

Block and Webb (2001) in Food Policy address the issue of the dynamics of livelihood diversification in Ethiopia. Their study uses the ratio of per capita income derived from crops to the sum of all other incomes as an indicator of livelihood diversification for the years 1989 and 1994. Their study focuses only on drought-prone areas during the survey years. The aim of the present study is to explore further the demographic and economic determinants of the dynamics of income diversification using survey data. The data used in this study cover larger and more representative sample and was colleted from rural Ethiopia during 1994 and 1997 harvest years. This study investigates not only the determinants of participation and intensity of off-farm activities, but also factors that affect the dynamics between 1994 and 1997. The results of this study attempt to answer the question: to what extent initial conditions (for instance, asset holdings, production, and crop income) prompt households to diversify to off-farm activities overtime. The results show that participation in off-farm activities is mainly driven by demographic factors, whereas land and other asset ownership as well as crop production and income affect intensity of off-farm activities. The dynamic model results show that farm families who have initially diversified to more off-farm activities subsequently realized less income diversification. Families with more initial crop production from slack harvest season subsequently realized greater income from off-farm activities in 1997. The study also confirms that it is only during slack harvest season that off-farm and on-farm activities are complement each other

Foreign Direct Investment and Uncertainty: Implications for Ethiopia

The paper examines the effect of price and exchange rate uncertainty and political instability on the inflow of Foreign Direct Investment (FDI) to selected African economies. Measures of uncertainty of inflation rate and real exchange rate are incorporated by taking the conditional variance of the residual of the Autoregressive (AR) processes of each series. Pooled data result without accounting for country specific factors is misleading. Fixed effects model provides a better explanation of the variation of FDI flow to African economies. The results show that uncertainty in the rate of inflation and political instability constrain the flow of FDI only when both are combined, and when they pass some threshold level. Real exchange rate volatility impedes the inflow of FDI only when its magnitude is low. When combined with political instability, real exchange rate has an unexpected significant positive impact on the flow of foreign direct investment. Domestic market size and market potential are not significant determinants of FDI inflow, but the volume of export attracts more FDI in the case where the stock of previous FDI is small

Do Foreign Direct Investment and Foreign Aid Promote Good Governance in Africa?

The literature on the roles that governance/political and economic stability play to attract capital flows into African economies has been burgeoning. Good governance, liberalization, infrastructure, incentive packages have been regarded as cures to break the deadlock to reverse the economic plight, to attract inflow of capital and, in some cases, to reverse outflows of African economies. The flow of capital, however, has undesirable side effects on host economies’ working conditions, environmental standard, inequality, and culture, among others. These economic and social external or negative spillover effects are due to the phenomenon of “race-to-the-bottom” where companies invest in economies with lax regulations and generous incentive packages. Given the highly expected significant economic impacts of Foreign Direct Investment (FDI) and foreign aid in Africa,, it is becoming clear that the increased inflow of FDI and foreign aid may also have impacts on the political institutions and governance of a nation, especially for the case of economically low income African economies. However, these effects of capital flow on democratic institutions and governance of host economies have not been formally addressed. Using data on governance indicators, FDI, and foreign aid recently made available and other control variables, the present study explores whether FDI and foreign aid promotes or retards governance in African economies. Appropriate estimation techniques that take into account endogeniety in the data as well as heterogeneity of the sample countries are employed. The results of the study show that foreign aid (official development aid) has had immediate and persistent positive effects during the study period. Flow of FDI also has positive, though weak, effects on governance but with no persistent effect. Other forms of official flow, with less grant component, have both immediate and lag negative effects on governance in African economies

Do Foreign Direct Investment and Foreign Aid Promote Good Governance in Africa?

The literature on the roles that governance/political and economic stability play to attract capital flows into African economies has been burgeoning. Good governance, liberalization, infrastructure, incentive packages have been regarded as cures to break the deadlock to reverse the economic plight, to attract inflow of capital and, in some cases, to reverse outflows of African economies. The flow of capital, however, has undesirable side effects on host economies’ working conditions, environmental standard, inequality, and culture, among others. These economic and social external or negative spillover effects are due to the phenomenon of “race-to-the-bottom” where companies invest in economies with lax regulations and generous incentive packages. Given the highly expected significant economic impacts of Foreign Direct Investment (FDI) and foreign aid in Africa,, it is becoming clear that the increased inflow of FDI and foreign aid may also have impacts on the political institutions and governance of a nation, especially for the case of economically low income African economies. However, these effects of capital flow on democratic institutions and governance of host economies have not been formally addressed. Using data on governance indicators, FDI, and foreign aid recently made available and other control variables, the present study explores whether FDI and foreign aid promotes or retards governance in African economies. Appropriate estimation techniques that take into account endogeniety in the data as well as heterogeneity of the sample countries are employed. The results of the study show that foreign aid (official development aid) has had immediate and persistent positive effects during the study period. Flow of FDI also has positive, though weak, effects on governance but with no persistent effect. Other forms of official flow, with less grant component, have both immediate and lag negative effects on governance in African economies

Does Farmer Field School Training Improve Technical Efficiency? Evidence from Smallholder Maize Farmers in Oromia, Ethiopia

This study carries out the impact evaluation of Farmer Field School (FFS) training program on the technical efficiency of smallholder farmers. The FFS program was sponsored by the Ethiopian government and launched in 2010 to scale-up best agricultural practices in the country. The study aims to compare changes in the technical efficiency of those FFS graduate and non-FFS graduate maize producing farmers in Ethiopia, Oromia. For this, panel data were collected in two rounds from 446 randomly selected households from three districts consisting of 218 FFS graduate farmers and 228 non-FFS graduate farmers. The analytical procedure has involved three stages: in the first stage, descriptive analyses were used to detect existence of the difference in the outcome indicators between the two farmer groups. In the second stage, we have applied a semi-parametric impact evaluation method of propensity score matching with several matching algorithms to estimate the program impact. In the third stage, we used Difference-in-Difference as robustness check in detecting causality between program intervention and the technical efficiency. The combined uses of these alternative estimation techniques indicate that the program has a negative impact on the technical efficiency of the FFS graduates. Numerous plausible explanations for this outcome are discussed, and recommendations for improvements are suggested accordingly