The role of the investment legal framework in Ethiopia's FDI-development nexus

Tihitina Ayalew Getaneh

Research output: ThesisDoctoral Thesis

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This dissertation examines whether FDI is working for development in the Ethiopian setting. It does so by bringing together theoretical and empirical research. It is widely acknowledged in the theoretical literature that FDI positively contributes to a host country’s development through technology spillover, human capital formation, increasing employment opportunities and improving living standards. However, empirical investigations of the FDI- development nexus show that the positive contribution of FDI on development is not automatic and is instead shaped by certain preconditions. Based on the evaluation of these preconditions as intermediary factors that influence the FDI- development nexus, this study argues that FDI does not work in the same manner for developed and developing countries, as the economic and institutional capacity of these countries differ greatly. This study therefore contributes to the literature that challenges the one size fit all approach of FDI in development and emphasizes the need for FDI – its mechanisms and processes - to be approached and evaluated from country-specific perspectives.
Thus, focusing on formal institutions – the investment legal framework – as one of the intermediary factors that could shape the role that FDI plays in development discourse and based on the insights drawn from the literature, the study examined the mechanisms of the FDI-development nexus in Ethiopia from two perspectives: the adequacy and implementation of mechanisms for attracting “quality FDI” and the transmission channels through which spillovers are captured. The latter was done by selecting two sub-sectors: mobile phones and textiles. The empirical research was composed of semi-structured interviews and data from government and international organizations.
The main findings of this study are that the legal framework that regulates FDI attraction mechanisms is not integrated with the overall development goals that Ethiopia has set itself. This finding is confirmed by the case studies – i.e., the attraction mechanisms are not aligned with the development goals, in particular in targeting “quality FDI.” Similarly, there is little evidence that the channels of transmission through which spillovers materialize is working in Ethiopia. The case studies identify the main barriers here to be the lack of an integrated FDI strategy, the lack of human resource capacity in regulatory institutions, limited institutional capacity and a lack of synergized policy formulation.
Original languageEnglish
QualificationDoctor of Laws
Awarding Institution
  • Tilburg University
  • Goodwin, Morag, Promotor
  • Dimopoulos, A., Promotor, External person
Award date17 Dec 2020
Publication statusPublished - 2020


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