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The Role of External Sector Dynamics in Food Production in Ethiopia: Evidence from Foreign Aid, FDI, Trade Openness, and Remittances

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  • Prince, Ehsanur Rauf

Abstract

This paper examines the macro-econometric relationship between external sector dynamics and agricultural food production in Ethiopia. Utilizing a comprehensive structural framework, this study investigates the long-run and short-run impacts of official development assistance (ODA), foreign direct investment (FDI), trade openness, and personal remittances on the Ethiopian Food Production Index. Using annual time-series data spanning from 1990 to 2024 and employing a Vector Error Correction Model (VECM), the framework captures complex cointegrating properties and systemic feedback mechanisms. The empirical findings indicate that trade openness and macroeconomic remittances exert statistically significant positive effects on food production in the long run. Foreign direct investment demonstrates a positive but modest long-run contribution, while official development assistance exhibits a minor negative impact, highlighting potential aid-dependency distortions and structural misallocation. The error correction term is found to be -0.65, implying a robust and rapid adjustment speed toward long-run equilibrium. These insights indicate that Ethiopia can structurally optimize its food production systems by deepening regional and global trade integration, creating targeted agro-industrial investment frameworks, and formalizing diaspora resource channels.

Suggested Citation

  • Prince, Ehsanur Rauf, 2026. "The Role of External Sector Dynamics in Food Production in Ethiopia: Evidence from Foreign Aid, FDI, Trade Openness, and Remittances," MPRA Paper 129427, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:129427
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    References listed on IDEAS

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    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • F0 - International Economics - - General
    • F1 - International Economics - - Trade
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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