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

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  • Pilbeam, Keith
  • Oboleviciute, Neringa

Abstract

This paper investigates whether foreign direct investment crowds in or crowds out domestic investment in the European Union. We use the theoretical model developed by Agosin and Machado (2005) and apply the Arellano-Bond generalized method of moments (GMM) to capture macroeconomic externalities. Our data analysis covers 26 of the 27 EU countries (excluding Luxembourg) for the period 1990–2008. Our main conclusion is that FDI has no negative impact on domestic investment in the new EU member states over the longer run. By contrast, for the older EU14 member states we detect a significant crowding out effect of FDI on domestic investment.

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  • Pilbeam, Keith & Oboleviciute, Neringa, 2012. "Does Foreign Direct Investment Crowd In or Crowd Out Domestic Investment? Evidence from the European Union," The Journal of Economic Asymmetries, Elsevier, vol. 9(1), pages 89-104.
    • Handle: RePEc:eee:joecas:v:9:y:2012:i:1:p:89-104
    DOI: 10.1016/j.jeca.2012.01.005
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    2. Batavia, Bala & Nandakumar, Parameswar & Wague, Cheick, 2013. "Export stagnation and budget deficits in the peripheral EU nations with EMU membership," The Journal of Economic Asymmetries, Elsevier, vol. 10(2), pages 94-100.
    3. Emre Gökçeli & Jan Fidrmuc & Sugata Ghosh, 2022. "Effect of Foreign Direct Investment on Economic Growth and Domestic Investment: Evidence from OECD Countries," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 8(2), pages 190-216.
    4. Thomas, Mini P, 2019. "Measurement of Investment Contribution of Service Sector in India’s Economic Growth," MPRA Paper 103702, University Library of Munich, Germany.
    5. Eslon Ngeendepi & Andrew Phiri, 2021. "Do FDI and Public Investment Crowd in/out Domestic Private Investment in the SADC Region?," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 19(1 (Spring), pages 3-25.
    6. Wira Ganet Aribowo, 2018. "Analysis of foreign direct investment as a comparison of macroeconomic factors in seven countries Asean 5, China and Japan during period 1996-2015," Journal of Economic Development, Environment and People, Alliance of Central-Eastern European Universities, vol. 7(4), pages 29-42, December.
    7. Najeh Bouchoucha & Sayef Bakari, 2021. "The Impacts Of Domestic And Foreign Direct Investments On Economic Growth: Fresh Evidence From Tunisia," Journal of Smart Economic Growth, , vol. 6(1), pages 83-102, Mars.
    8. Bouchoucha, Najeh & Bakari, Sayef, 2019. "The Impact of Domestic and Foreign Direct Investment on Economic Growth: Fresh Evidence from Tunisia," MPRA Paper 94777, University Library of Munich, Germany.
    9. Wen, Jun & Zhang, Sen & Chang, Chun-Ping & Anugrah, Donni Fajar & Affandi, Yoga, 2023. "Does climate vulnerability promote green investment under energy supply restriction?," Energy Economics, Elsevier, vol. 124(C).
    10. Ha, Van & Holmes, Mark J. & Tran, Tuyen Quang, 2022. "Does foreign investment crowd in domestic investment? Evidence from Vietnam," International Economics, Elsevier, vol. 171(C), pages 18-29.
    11. Taguchi, Hiroyuki, 2019. "Economic effects of inward foreign direct investment in Vietnamese provinces," MPRA Paper 92032, University Library of Munich, Germany.
    12. Federico Carril-Caccia & Juliette Milgram Baleix & Jordi Paniagua, 2019. "Does Terrorism Affect Foreign Direct Investment?," Working Papers 1913, Department of Applied Economics II, Universidad de Valencia.

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    More about this item

    Keywords

    F21; F23; F36; F43; Foreign direct investment; Domestic investment; European Union;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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