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Domestic Investment And Fdi In Developing Countries: The Missing Link

Author

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  • MARC LAUTIER

    (CEPN,Universite Paris 13)

  • FRANCOIS MOREAUB

    (CEPN,Universite Paris 13)

Abstract

This paper investigates the impact of domestic investment on Foreign Direct Investment (FDI) to Developing Countries (DC). While the literature has provided numerous studies on the effects of FDI on growth and investment in host-country, very little is known about how domestic investment itself affects FDI inflows. The paper attempted to fill this gap. Evidence from a large cross-country sample (68 countries), over a long time period (1984-2004), shows that lagged domestic investment has a strong influence on FDI inflows in the host-economy, implying that domestic investment is a strong catalyst for FDI in DC and that Multinational Companies do follow economic development. This result suggests that investment promotion policies directed towards domestic firms will be efficient to attract foreign investors as well.

Suggested Citation

  • 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.
    • Handle: RePEc:jed:journl:v:37:y:2012:i:3:p:1-23
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    8. Tomasz Dorożyński & Janusz Świerkocki & Wojciech Urbaniak, 2015. "Incentives for Attracting FDI: The Case of the Lodz Region," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 1, pages 147-169.
    9. Shah, Syed Hasanat & Hasnat, Hafsa & Cottrell, Simon & Ahmad, Mohsin Hasnain, 2020. "Sectoral FDI inflows and domestic investments in Pakistan," Journal of Policy Modeling, Elsevier, vol. 42(1), pages 96-111.
    10. Najeh Bouchoucha & Saloua Benammou, 2020. "Does Institutional Quality Matter Foreign Direct Investment? Evidence from African Countries," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 11(1), pages 390-404, March.
    11. 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.
    12. Md. Sharif Hossain & Rajarshi Mitra & Md. Iqbal Hossain, 2018. "The Determinants of Inbound FDI: Asia on a Reappraisal," Economics Bulletin, AccessEcon, vol. 38(4), pages 2500-2508.
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    14. Elisa Van Waeyenberge & Hannah Bargawi, 2016. "Financing Economic Development. Theoretical Debates and Empirical Trends," Working papers wpaper139, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    15. Bouchoucha, Najeh & Yahyaoui, Ismahen, 2019. "Governance and Foreign Direct Investment : A comparative Analysis between Low and Middle Income African Countries," MPRA Paper 95944, University Library of Munich, Germany.
    16. Samuel Adams & Daniel Sakyi & Eric Evans Osei Opoku, 2016. "Capital Inflows and Domestic Investment in Sub-Saharan Africa," Foreign Trade Review, , vol. 51(4), pages 328-343, November.
    17. Sondra Collins & Edward Nissan, 2016. "Comparing Africa, Asia and Latin America/Caribbean countries using per capita GDP, remittances, openness, capital/labor ratios and freedom," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 40(1), pages 188-198, January.
    18. Durnev, Art & Enikolopov, Ruben & Petrova, Maria & Santarosa, Veronica, 2015. "Politics, instability, and composition of international investment flows," Journal of Corporate Finance, Elsevier, vol. 30(C), pages 299-324.
    19. Rashid, Furaha N. & Mwenda, Beny B. & Tengaa, Peter E., 2023. "Bridging Borders, Nourishing Nations: The Impact of Foreign Direct Investment on Tanzania's Cereal Yield," International Journal of Food and Agricultural Economics (IJFAEC), Alanya Alaaddin Keykubat University, Department of Economics and Finance, vol. 11(4), October.
    20. -, 2016. "Foreign Direct Investment in Latin America and the Caribbean 2016," La Inversión Extranjera Directa en América Latina y el Caribe, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 40214 edited by Eclac, September.
    21. Abdul-Aziz Iddrisu & Baba Adam & Babamu Osman Halidu, 2015. "The Influence of Foreign Direct Investment (FDI) on the Productivity of the Industrial Sector in Ghana," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 5(3), pages 1-13, July.
    22. Dorożyński Tomasz & Urbaniak Wojciech & Świerkocki Janusz, 2015. "The Location Premises Of FDI In Poland. The Case Of The Lodz Province / Przesłanki Lokalizacji Biz w Polsce. Przykład Regionu Łódzkiego," Comparative Economic Research, Sciendo, vol. 18(4), pages 157-178, December.
    23. VPhuong V. Nguyen, Khoa T. Tran, Nga Thuy Thanh Le and Hoa Doan Xuan Trieu, 2020. "Examining FDI Spillover Effects on Productivity Growth: Firm-Level Evidence from Vietnam," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 45(1), pages 97-121, March.
    24. Zainab Jehan & Azooba Hamid, 2017. "Exchange rate volatility and capital inflows: role of financial development," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 16(3), pages 189-203, December.

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    More about this item

    Keywords

    Foreign Direct Investment; Developing Countries; Domestic Investment; Industrial Policy;
    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
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy

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