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The Linkages Between FDI and Domestic Investment: Unravelling the Developmental Impact of Foreign Investment in Sub-Saharan Africa

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  • Léonce Ndikumana
  • Sher Verick

Abstract

While the recent increase in foreign direct investment (FDI) to African countries is a welcome development, the impact of these resource inflows on economic development remains in doubt. This article argues that a key channel is its effects on domestic factor markets, especially domestic investment, and analyses the two-way linkages between FDI and domestic investment in sub-Saharan Africa. The results suggest, first, that FDI crowds in domestic investment and, secondly, that private investment is a driver of FDI, implying that African countries will gain much from improving the domestic climate. Moreover, there are alternatives to resource endowments as a means of attracting foreign investment to non-resource-rich countries. Copyright (c) The Authors 2008. Journal compilation (c) 2008 Overseas Development Institute..

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Bibliographic Info

Article provided by Overseas Development Institute in its journal Development Policy Review.

Volume (Year): 26 (2008)
Issue (Month): 6 (November)
Pages: 713-726

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Handle: RePEc:bla:devpol:v:26:y:2008:i:6:p:713-726

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References

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  1. Joerg Breitung & M. Hashem Pesaran, 2005. "Unit Roots and Cointegration in Panels," CESifo Working Paper Series 1565, CESifo Group Munich.
  2. Asiedu, Elizabeth, 2005. "Foreign Direct Investment in Africa: The Role of Natural Resources, Market Size, Government Policy, Institutions and Political Instability," Working Paper Series RP2005/24, World Institute for Development Economic Research (UNU-WIDER).
  3. Smarzynska Javorcik, Beata & Spatareanu, Mariana, 2005. "Do Foreign Investors Care About Labour Market Regulations?," CEPR Discussion Papers 4839, C.E.P.R. Discussion Papers.
  4. Andrew MOLD, 2004. "Fdi And Poverty Reduction: A Critical Reappraisal Of The Arguments," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 20, pages 91-122.
  5. Dirk Willem te Velde, 2003. "Do Workers in Africa Get a Wage Premium if Employed in Firms Owned by Foreigners?," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 12(1), pages 41-73, March.
  6. Asiedu, Elizabeth, 2002. "On the Determinants of Foreign Direct Investment to Developing Countries: Is Africa Different?," World Development, Elsevier, vol. 30(1), pages 107-119, January.
  7. Léonce Ndikumana, 2003. "Capital Flows, Capital Account Regimes, and Foreign Exchange Rate Regimes in Africa," Working Papers wp55, Political Economy Research Institute, University of Massachusetts at Amherst.
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Cited by:
  1. Szirmai, Adam & Gebreeyesus, Mulu & Guadagno, Francesca & Verspagen, Bart, 2013. "Promoting productive employment in Sub-Saharan Africa: A review of the literature," MERIT Working Papers 062, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  2. Giorgia Giovannetti & Elisa Ticci, 2013. "Foreign Direct Investment in Sub-Saharan Africa: Drivers and the Challenge of the Land-Energy Nexus," Working Papers - Economics wp2013_09.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
  3. Rasha Hashim Osman & Constantinos Alexiou & Persefoni Tsaliki, 2012. "The role of institutions in economic development: Evidence from 27 Sub-Saharan African countries," International Journal of Social Economics, Emerald Group Publishing, vol. 39(2), pages 142-160, January.
  4. Carike Claassen & Elsabé Loots & Henri Bezuidenhout, 2011. "Chinese Foreign Direct Investment in Africa," Working Papers 261, Economic Research Southern Africa.
  5. Ambaye, G. G. & Berhanu, T. & Abera, G., 2013. "Modeling the Determinats of Domestic Private Investments in Ethiopia," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 5(4), December.
  6. Marc Lautier & Francois Moreaub, 2012. "Domestic Investment And Fdi In Developing Countries: The Missing Link," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 37(3), pages 1-23, September.
  7. Farla, Kristine & de Crombrugghe, Denis & Verspagen, Bart, 2013. "Institutions, Foreign Direct Investment, and Domestic Investment: crowding out or crowding in?," MERIT Working Papers 054, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  8. Md. Sharif Hossain & Rajarshi Mitra, 2013. "A Dynamic Panel Analysis of the Determinants of FDI in Africa," Economics Bulletin, AccessEcon, vol. 33(2), pages 1606-1614.

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