Symmetric and Asymmetric Effects of Foreign Direct Investment on Agriculture Sector Performance: Evidence from Ethiopia

Abstract

This study examines the symmetrical and asymmetrical impacts of agricultural FDI on the performance of Ethiopia's agricultural sector. It uses multivariate time series data from secondary sources spanning 1981-2021. The data include agricultural real GDP, agricultural FDI inflow, and selected macroeconomic variables. Linear ARDL and non-linear ARDL (NARDL) econometric models were employed for analysis. Results from the asymmetric ARDL model indicate that positive FDI shocks have a significant and favorable effect on agricultural real GDP by 0.05% in the long run. However, negative FDI shocks were found to be statistically insignificant. In the short run, increases in FDI inflow during previous periods significantly reduced current agricultural real GDP, while decreases in FDI inflow also significantly diminished current agricultural production. According to the symmetric ARDL model, there was no significant relationship between the two variables in either the short or long term. The Granger causality test revealed a unidirectional relationship from FDI inflow to agricultural real GDP. In conclusion, agricultural FDI inflow significantly affects the performance of agricultural real GDP in the long run; however, its positive effect is not automatic in the short run. Therefore, attracting more FDI inflow to the agricultural sector is recommended to address financial and technological gaps in Ethiopia's agriculture sector.