The study aimed at identifying the effect of FDI inflows to export performance in Ethiopia. Engle-Granger two step procedures are used to find the relationship using time series data for over the period1981 to 2014. The results show that FDI inflows do play significant positive role on export performance in the short run as well as in the long-run. Therefore, FDI inflows contribute to improve export growth both in the short run and in the long-run. In addition, world income has significant positive effect on export performance in the long-run whereas real effective exchange rate has no effect on export. To further augment export performance through inward FDI, the government of Ethiopia needs to improve its ability to attract foreign direct investment via improvements in the quality of institutions, investment incentives, skilled manpower. Besides, efforts should be devoted to the strengthening towards the integration of the local industries and the export sectors.
Key Words: FDI inflows, Export performance, Engle-Granger two step procedures.
