Dynamic Linkages between FDI Inflows and Domestic Investment: A Panel Cointegration Approach

Abstract

This paper analyzes the dynamic relationship between FDI inflows and domestic investment for a panel of selected countries by means of panel cointegration and causality techniques. Specifically, the paper provides empirical evidence regarding the existence of possible crowding in or crowding out effects between FDI inflows and domestic investment, accounting for the location and the level of development of the host countries. Copyright International Atlantic Economic Society 2006C33, C51, F21), FDI inflows, domestic investment, panel cointegration,

Does Foreign Direct Investment Crowd In or Crowd Out Domestic Investment? Evidence from the European Union

“…Their results suggest, first, that FDI crowds in domestic investment and, secondly, that private investment is a driver of FDI which implies that by improving the domestic business climate African countries can gain significantly from FDI. Apergis et al (2006) use a panel data set of 30 different countries in four continents for the period 1992-2002 and find crowding-in effect on domestic investment in the cases of Asia and Africa (less developed) and crowding-out effects for America and Europe (more developed). They also provide evidence of two-way causal linkage between FDI and domestic investment.…”

“…Some studies do include some of EU15, that is, pre May 2004 countries in their sample and others provide an analysis of the impact of FDI on some of the new EU12, that is, post May 2004 member countries separately. These studies include, Apergis et al (2006), Mileva (2008, Mišun and Tomšík (2002), Titarenko (2005), Javorcik (2004. However, to date no one has measured impact of FDI on domestic investment in all European Union member states.…”

Institutions, Foreign Direct Investment, and Domestic Investment: Crowding Out or Crowding In?

“…Other scholars find that FDI stimulates (or crowds in) private domestic investment (Al-Sadig, 2013;Ramirez, 2011;Ndikumana and Verick, 2008;Tang et al, 2008;de Mello, 1999;Bosworth and Collins, 1999;Borensztein et al, 1998). Several scholars find mixed evidence when using several lags for FDI or when splitting the country sample according to geographic region (Adams (2009); Apergis et al (2006); Agosin and Mayer (2000); Misun and Tomsik (2002); Agosin and Mayer (2000)), or find no effect of FDI on domestic investment (Lipsey (2000)). 1 Similarly, the productivity spillovers of inward FDI is disputed in the literature.…”

Impact of Foreign Direct Investment and Domestic Investment in South Asia: Time Series and Panel Evidence

“…Previous empirical studies do not provide any clear evidence. In fact, the empirical evidence varies from country to country and region to region because of differences in national/regional policies, response of domestic enterprises, the type of FDI inflow in the recipient country, and the econometric methodology used for the study 2 (De Mello 1999;Agosin and Mayer 2000;Apergis et al 2006). Hence, this section intends to contribute to the FDI-DI connection by examining the issue empirically for five South Asian countries by using both time series and panel data analysis.…”