Overview

This study examines the interplay of different sources of development finance in Ethiopia between 1991 and 2017. With the shift from the Millennium Development Goals (MDGs) to the Sustainable Development Goals (SDGs), the global community, at a conference in Addis Ababa, called on countries to mobilize both domestic and external financial resources. However, little attention has been paid to how these different funding sources influence each other. Using a mixed-methods approach that includes a vector error correction model, ordinary least squares analysis, and in-depth interviews, this research found that external financial resources are the primary source of development finance for Ethiopia. They complement and fill gaps in domestic resource mobilization (DRM). The impact of these external funds on Ethiopia's DRM capacity depends on the specific type of domestic resource being analyzed. Based on these findings, the study recommends that policymakers discontinue ineffective fiscal incentives for attracting FDI and address problems in their implementation. Furthermore, the government should find ways to mitigate the negative effects of external development finance.

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