1.1 Objective

The central objective of thestudy is to analyse the long run effect of improved Productivity of themanufacturing industry on the economy of Ethiopia by using a simple regressionanalysis. The specific objective includes:

#216; Toanalyse the role of china’s FDI on manufacturing sector in Ethiopian GDP in thelast decade.

#216; Toevaluate the impact of Chinese manufacturing engagement on the Ethiopiaeconomic growth.

#216; Toexplore the general performance and scope of operation of Chinese manufacturingin Ethiopia.

#216; To suggesta possible recommendation for the growth of Ethiopia’s manufacturing in to theGDP and enhance china’s FDI in Ethiopia.

1.2 Significance of research

Thisstudy will be significant in the sense that Ethiopia’s manufacturing sector hasexperienced an increase trend of china’s FDI inflows over the years. Accordingly, it will conductregarding the China’s FDI in manufacturing industry and economic growth. Itshould be noted that FDI inflows in manufacturing sector to Ethiopia is verycrucial because it serves as a source of capital, promotes economic growth andcreates employment opportunities.The objective of the study is to theoretically and empirically investigate andquantify the relationship between FDI and economic development. Economicdevelopment in this thesis is measured in terms of real GDP growth. This study aimsto fill the gaps identified as it uses a regression model of analysis andobserves the impact of china’s FDI in manufacturing sector on the economy.

1.3 Statementof the problem

Ethiopia economic highlydependence on agriculture has decrease in the last decade due to the growth inservices, driven by an increase in financial intermediate, publicadministration and retail trade, rather than the growth that was hoped for inindustry and specifically manufacturing. Ethiopia has made little progress inthe manufacturing sector over the last few years. By the end of 2015 the industrialsector in Ethiopia was only 15.1% which is much less than the world average(26.29%) and the sub-Saharan average (30.34%). The manufacturing as a share ofgross domestic product in Ethiopia remains less than 5%, well below the Africanaverage of 10%. Meanwhile China’s investment in manufacturing has increased inrecent years mainly in small and medium manufacturing. China’s investment inEthiopia today is predominantly focused in areas of extracting sector andinfrastructure sectors. As industrialization is moving forwards in Ethiopia,china’s FDI in manufacturing assessment could play a crucial role intransformation of Ethiopia economic. This paper will focus on china’s role inthe manufacturing sector in the past economic growth of Ethiopia and will recommendfuture indication of its involvement in the GDP.