Reproducibility package for Investment Policy Reforms And Foreign Direct Investment Inflows: A Case Study Of Ethiopia

Foreign Direct Investment (FDI) has the potential to introduce much-needed capital and expertise to emerging and developing economies. To attract FDI, many countries have eased restrictions on foreign ownership in various sectors, reformed their institutions and set up investment promotion agencies. Until the mid-2010s, Ethiopia remained one of the few countries that resisted this trend, with several stringent restrictions in place on FDI entry and operations in the country. This study employs a “Synthetic Control” method to examine patterns in foreign capital inflows following a series of investment policy reforms that were substantively introduced in the mid-2010s (circa 2015). The study offers evidence that investment policy reforms contributed to a significant FDI inflow in Ethiopia, compared to what would have occurred in the absence of these policies. An alternative strategy that conservatively specifies the donor country pool using AI-assisted deep search technique changes the SCM donor pool weighting matrix, but the estimated policy effects largely remain robust to this specification. The findings highlight the importance of targeted reforms in promoting FDI inflow in developing countries.