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The Impact of Foreign Direct Investment on Domestic Investment: Evidence from Sudan

Author

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  • Yassin Elshain Yahia

    (School of Economics, Huazhong University of Science and Technology, 1037 Luoyu Road, Hongshan District, Wuhan 430074, P.R. China)

  • Liu Haiyun

    (School of Economics, Huazhong University of Science and Technology, 1037 Luoyu Road, Hongshan District, Wuhan 430074, P.R. China)

  • Muhammad Asif Khan

    (School of Economics, Huazhong University of Science and Technology, 1037 Luoyu Road, Hongshan District, Wuhan 430074, P.R. China)

  • Sayyed Sadaqat Hussain Shah

    (National College for Business Administration and Economics, DHA Lahore, I.R. Pakistan)

  • Mollah Aminul Islam

    (School of Economics, Huazhong University of Science and Technology, 1037 Luoyu Road, Hongshan District, Wuhan 430074, P.R. China.)

Abstract

This study applies the ARDL Bounds test to cointegration and Granger Causality to examine the impact of foreign direct investment (FDI) inflows on domestic investment of Sudan over the period 1976-2016. Empirical results show a crowd out effect of FDI on Sudan's domestic investment, and the results confirm the cointegration relationships. Economic growth, exchange rate, macroeconomic stability and natural resource rent have shown short and long-run significant association with domestic investment, whereas, foreign direct investment appears as a long-term determinant. Moreover, the ECM reveals that system corrects previous period disequilibrium at an annual rate of 35%. The Granger Causality results conclude unidirectional causal flows from FDI, exchange rate, macroeconomic stability, natural resource rent, and trade openness to domestic investment. The study suggests some policy measures to design effective policies for macroeconomic stability; controlling inflation, flexible exchange rate spurring economic growth, and as well as developing effective strategies to encourage the mode of FDI that can create technological and market share spillover.

Suggested Citation

  • Yassin Elshain Yahia & Liu Haiyun & Muhammad Asif Khan & Sayyed Sadaqat Hussain Shah & Mollah Aminul Islam, 2018. "The Impact of Foreign Direct Investment on Domestic Investment: Evidence from Sudan," International Journal of Economics and Financial Issues, Econjournals, vol. 8(6), pages 1-10.
    • Handle: RePEc:eco:journ1:2018-06-1
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    2. Dobdinga Cletus Fonchamnyo & Gildas Dohba Dinga & Vahsegmi Carolle Ngum, 2021. "Revisiting the nexus between domestic investment, foreign direct investment and external debt in SSA countries: PMG‐ARDL approach," African Development Review, African Development Bank, vol. 33(3), pages 479-491, September.
    3. Islam, Mollah Aminul & Liu, Haiyun & Khan, Muhammad Asif & Islam, Md Tariqul & Sultanuzzaman, Md Reza, 2021. "Does foreign direct investment deepen the financial system in Southeast Asian economies?," Journal of Multinational Financial Management, Elsevier, vol. 61(C).
    4. Garedew Aweke Gizaw & Negash Haile Dedeho & Tariku Lorato Lodamo, "undated". "The nexus between foreign direct investment, domestic investment and economic growth: Evidence from Ethiopia," Review of Socio - Economic Perspectives 202188, Reviewsep.

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    More about this item

    Keywords

    FDI; Domestic Investment; crowd-in; crowd-out;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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