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Domestic Investment And Fdi In Developing Countries: The Missing Link

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Author Info

  • MARC LAUTIER

    ()
    (CEPN,Universite Paris 13)

  • FRANCOIS MOREAUB

    (CEPN,Universite Paris 13)

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    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.

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    File URL: http://www.jed.or.kr/full-text/37-3/1.pdf
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    Bibliographic Info

    Article provided by Chung-Ang Unviersity, Department of Economics in its journal Journal Of Economic Development.

    Volume (Year): 37 (2012)
    Issue (Month): 3 (September)
    Pages: 1-23

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    Handle: RePEc:jed:journl:v:37:y:2012:i:3:p:1-23

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    Related research

    Keywords: Foreign Direct Investment; Developing Countries; Domestic Investment; Industrial Policy;

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    References

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    1. Peter Nunnenkamp, 2002. "Determinants of FDI in Developing Countries: Has Globalization Changed the Rules of the Game?," Kiel Working Papers 1122, Kiel Institute for the World Economy.
    2. Sufian Eltayeb Mohamed & Moise G. Sidiropoulos, 2010. "Another Look At The Determinants Of Foreign Direct Investment In Mena Countries: An Empirical Investigation," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 35(2), pages 75-95, June.
    3. Moosa, Imad A. & Cardak, Buly A., 2006. "The determinants of foreign direct investment: An extreme bounds analysis," Journal of Multinational Financial Management, Elsevier, vol. 16(2), pages 199-211, April.
    4. James R. Markusen & Anthony J. Venables, 1997. "Foreign Direct Investment as a Catalyst for Industrial Development," NBER Working Papers 6241, National Bureau of Economic Research, Inc.
    5. Adugna Lemi, 2004. "Foreign Direct Investment, Host Country Productivity And Export: The Case Of U.S. And Japanese Multinational Affiliates," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 29(1), pages 163-187, June.
    6. Peter Nunnenkamp, Julius Spatz, 2003. "Foreign Direct Investment and Economic Growth in Developing Countries: How Relevant Are Host-country and Industry Characteristics?," Kiel Working Papers 1176, Kiel Institute for the World Economy.
    7. David W Loree & Stephen E Guisinger, 1995. "Policy and Non-Policy Determinants of U.S. Equity Foreign Direct Investment," Journal of International Business Studies, Palgrave Macmillan, vol. 26(2), pages 281-299, June.
    8. Ali F. Darrat & Jayanta Sarkar, 2009. "Growth Consequences Of Foreign Direct Investment: Some Results For Turkey," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 34(2), pages 85-96, December.
    9. Ann Harrison & Ana Revenga, 1995. "The Effects of Trade Policy Reform: What Do We Really Know?," NBER Working Papers 5225, National Bureau of Economic Research, Inc.
    10. Léonce Ndikumana & Sher Verick, 2007. "The Linkages between FDI and Domestic Investment: Unravelling the Developmental Impact of Foreign Investment," UMASS Amherst Economics Working Papers 2007-13, University of Massachusetts Amherst, Department of Economics.
    11. Ndikumana, Leonce & Verick, Sher, 2008. "The Linkages between FDI and Domestic Investment: Unravelling the Developmental Impact of Foreign Investment in Sub-Saharan Africa," IZA Discussion Papers 3296, Institute for the Study of Labor (IZA).
    12. Manuel R. AGOSIN & Ricardo MAYER, 2000. "Foreign Investment In Developing Countries, Does It Crowd In Domestic Investment?," UNCTAD Discussion Papers 146, United Nations Conference on Trade and Development.
    13. Sandrine Levasseur, 2002. "Investissements directs à l'étranger et stratégies des entreprises multinationales," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(5), pages 103-152.
    14. Findlay, Ronald, 1978. "Relative Backwardness, Direct Foreign Investment, and the Transfer of Technology: A Simple Dynamic Model," The Quarterly Journal of Economics, MIT Press, vol. 92(1), pages 1-16, February.
    15. Li, Xiaoying & Liu, Xiaming, 2005. "Foreign Direct Investment and Economic Growth: An Increasingly Endogenous Relationship," World Development, Elsevier, vol. 33(3), pages 393-407, March.
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    Cited by:
    1. 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.
    2. Kamal A. El-Wassal, 2012. "Foreign Direct Investment And Economic Growth In Arab Countries (1970-2008): An Inquiry Into Determinants Of Growth Benefits," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 37(4), pages 79-100, December.

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