Does FDI Crowd in or out Domestic Investment? New Evidence from Emerging Economies - Modern Economy

ME > Vol.5 No.4, April 2014

Modern Economy

Volume 5, Issue 4 (April 2014)

ISSN Print: 2152-7245 ISSN Online: 2152-7261

Google-based Impact Factor: 0.74 Citations h5-index & Ranking

Does FDI Crowd in or out Domestic Investment? New Evidence from Emerging Economies ()

HTML

Download as PDF (Size: 411KB) PP. 391-400

DOI: 10.4236/me.2014.54038 8,335 Downloads 13,033 Views Citations

Author(s)

Ahmed Kamaly

Affiliation(s)

Associate Professor, Department of Economics, The American University in Cairo, Cairo, Egypt.

ABSTRACT

Foreign direct investment (FDI) has been for a while now an acronym associated with improvement in competitiveness and economic growth. To assess the expediency of FDI, it is imperative to answer the following question: what is the dynamic effect of FDI on total investment? In other words, what is the effect of FDI on domestic investment (DI); does it crowd in or out domestic investment? Research addressing this question is relatively recent and its empirical findings are ambiguous. This paper attempts to dodge the pitfalls in the theoretical and especially the empirical literature in assessing the link between FDI and domestic investment. The paper develops a simple theoretical model which is commonly used in the literature to come up with a reduced-form equation. Using data on 16 emerging countries over a 30-year period, the empirical model is estimated as a system of equations where each equation represents a country. Grouping all individual country regression in one system of equations aims to take into account the common contemporaneous errors associated with global shocks affecting FDI flows. This system of equations is estimated using 3SLS to account for both the existence of contemporaneous errors among individual country equations as well as the endogeneity of FDI. Results show that in general the effect of FDI on DI is country specific; however, in most countries, on impact, FDI has a positive and significant effect on DI. In subsequent periods, FDI may crowd out DI. In most countries included in the sample, FDI has a neutral long-term effect on DI. Crowding in or crowding out effect of FDI on DI is only found in few countries. This indicates that the rule is the neutrality of FDI on DI and the exception is otherwise (whether crowding in or out).

KEYWORDS

FDI, Domestic Investment, Crowding out, Crowding in, Emerging Economies, Three Stage Least Squares

Share and Cite:

Kamaly, A. (2014) Does FDI Crowd in or out Domestic Investment? New Evidence from Emerging Economies. Modern Economy, 5, 391-400. doi: 10.4236/me.2014.54038.

Cited by

[1]	AN EMPIRICAL ANALYSIS OF THE GROWTH IMPACT OF FOREIGN DIRECT INVESTMENT IN THE SOUTH AFRICAN ECONOMY
	International Journal of Economics …, 2022

[2]	An analysis of the contribution of foreign direct investment to economic growth in South Africa
	2022

[3]	Investigating Poverty and Politics as Barriers to International Investment in Sub-Saharan Africa
	2021

[4]	One country, many industries: Heterogeneity of Chinese OFDI motivations at meso level
	China Economic Review, 2021

[5]	The relationship between development assistance for health and public health financing in 134 countries between 2000 and 2015
	2021

[6]	Inversion extranjera directa y crecimiento económico en el Perú 1985-2018
	2020

[7]	Effects of Foreign Investment on Domestic Private Equity
	2020

[8]	Three essays on FDI and uneven development
	2020

[9]	Влияние прямых иностранных инвестиций на внутренние инвестиции в российской экономике
	2020

[10]	THE IMPACT OF TRADE OPENNESS ON ECONOMIC GROWTH IN SOUTH AFRICA
	2019

[11]	External debt stock, foreign direct investment and financial development: Evidence from African economies
	2019

[12]	Do channels of financial integration matter for FDI's impact on growth? Empirical evidence using a panel
	2019

[13]	Impacts of FDI Inflows on Domestic Investment, Trade, Education, Labor Forces and Energy Consumption in Bangladesh
	2019

[14]	Does FDI Stimulate or Crowd Out Domestic Investment in Saudi Arabia?
	Journal of Economics and Sustainable Development, 2019

[15]	The crowding effects of foreign direct investment on domestic investment: Evidence from Asia
	2019

[16]	External debt stock, foreign direct investment and financial development
	2019

[17]	Private, Public and Foreign Investment Nexus in Pakistan: An Empirical Analysis of Crowding-In/Out Effects
	2019

[18]	Does FDI crowd out domestic investment in transition countries?
	2018

[19]	Institutions as a Mediator of the Effect of Crossborder Mergers & Acquisitions on Domestic Investment
	2018

[20]	Institutional Setting as a Determinant of Economic Effects of Cross Border Mergers and Acquisitions in European Transition Countries
	2018

[21]	The causal relationship between Foreign Direct Investment (FDI) and the macro-economy of selected west African countries: Panel ARDL/Granger Causality Analysis
	African Research Review, 2018

[22]	Investigating the Impact of Foreign Direct Investment on Domestic Investment in Sub-Saharan Africa: A Case Study of Kenya and South Africa
	Student Theses & Publications, 2018

[23]	A Statistical model to forecast foreign direct investment of a country: a cross country analysis
	2017

[24]	ФИНАНСОВАЯ КОНВЕРГЕНЦИЯ КАК ОСОБЫЙ МЕХАНИЗМ МОДИФИКАЦИИ ПЕНСИОННОГО И СТРАХОВОГО СЕКТОРОВ МИРОВОГО РЫНКА ФИНАНСОВЫХ УСЛУГ
	Dissertation, 2017

[25]	Impact of foreign direct investment on domestic investment: evidence from Sub-Saharan Africa
	2017

[26]	Weakness in investment growth: causes, implications and policy responses
	CAMA Working Paper, 2017

[27]	Weakness in Investment Growth
	2017

[28]	Net profit flow per country from 1980 to 2009: The long-term effects of foreign direct investment
	PLOS ONE, 2017

[29]	Examining the Relative Roles of Domestic and Foreign Direct Investments in Nigeria
	International Journal of Economics and Financial Issues, 2017

[30]	INSTITUTIONAL SETTING AS A DETERMINANT OF ECONOMIC EFFECTS OF CROSS-BORDER MERGERS AND ACQUISITIONS IN EUROPEAN TRANSITION …
	2017

[31]	Attracting FDI to the New EU Member States
	Competitiveness of CEE Economies and Businesses, 2016

[32]	The historical development of Japanese investment in Malaysia (1910-2003)
	2015

[33]	IMPACT OF FOREIGN DIRECT INVESTMENT (FDI) ON DOMESTIC INVESTMENT IN REPUBLIC OF CROATIA
	REVIEW OF INNOVATION AND COMPETITIVENESS, 2015

[34]	The Historical Development of Japanese Investment in Malaysia
	2015

[35]	Determinants of Profit Repatriation: Evidence from the Czech Republic and OECD Countries


[36]	DETERMINANTS OF FOREIGN DIRECT INVESTMENT IN ECONOMIC COMMUNITY OF WEST AFRICAN STATES (ECOWAS)

Journals Menu

Follow SCIRP

	+1 323-425-8868
	customer@scirp.org
	+86 18163351462(WhatsApp)
	1655362766

	Paper Publishing WeChat

Journals Menu

Home

About SCIRP

Service

Policies