Abstract

This research highlights the critical need to examine how Chinese Foreign Direct Investment (FDI) influences employment in Ethiopia, particularly given the nation’s growing reliance on external capital to stimulate job generation. Employing an Autoregressive Distributed Lag (ARDL) model with national time-series data, the study evaluates the effects of Chinese FDI on employment in both the short and long term. The analysis reveals a substantial positive influence in the long run, most notable in labour-intensive industries such as manufacturing and construction, whereas the short-term impact remains constrained due to mismatches in workforce skills and the predominance of capital-intensive project designs. Considering that China contributes nearly half of Ethiopia’s total FDI inflows, the findings emphasise the necessity of aligning domestic labour market capacities with the structural characteristics of incoming investments. The outcomes offer empirically grounded guidance for formulating policies that optimise employment benefits through targeted labour market interventions.