The Impact Of Energy Price And Energy Supply On Foreign Direct Investment(FDI)

This paper attempts to examine the impacts of energy price and energy supply on Foreign Direct Investment in Ethiopia.The study employs multivariate ordinary least square regression by using time series data covering the period 1992 to 2015.To analyze the impacts of energy supply and energy price as determinants of FDI inflows to Ethiopia,additional variables which are a market size(i.e.,GDP growth),trade openness(i.e.,export to GDP ratio)and inflation rate are selected from the previously conducted works of literature and tested together.The finding shows that energy supply,export to GDP ratio and GDP growth have positive impacts while inflation rate and energy price have negative impacts on FDI inflow to Ethiopia.On the other hand,from those variables energy supply,energy price,export to GDP ratio and inflation rate affects FDI significantly while and GDP growth has an insignificant effect on FDI inflow to Ethiopia.These findings imply higher power prices will increase cost burdens for multinational firms and thereby undermine the competitiveness of Ethiopia as a destination for FDI,and the low-income people will not afford the addition of tariff.So,the government should give a serious attention when the tariff amendment is carried out.It also implies the government should improve the country’s energy supply and sustainability;meanwhile,it should take various additional measures and implement seriously to enhance the investment environment to make the export sector productive and profitable.