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

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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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Ndikumana, Leonce () (University of Massachusetts Amherst)
Verick, Sher () (UNECA)

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Sher Verick

Abstract

While the recent increase in foreign direct investment (FDI) to African countries is a welcome development, the question remains as to the impact of these resource inflows on economic development. This study posits that a key channel of the impact of FDI on development is through its effects on domestic factor markets, especially domestic investment and employment. In this context, this study analyses the two-way linkages between FDI and domestic investment in Sub-Saharan Africa. The results suggest that firstly, FDI crowds in domestic investment, and secondly, countries will gain much from measures aimed at improving the domestic investment climate. Moreover, there are alternatives to resource endowments as a means of attracting foreign investment to non-resource rich countries.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3296.

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Length: 34 pages
Date of creation: Jan 2008
Date of revision:
Handle: RePEc:iza:izadps:dp3296

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Find related papers by JEL classification:
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
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, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment

This paper has been announced in the following NEP Reports:

NEP-AFR-2008-02-02 (Africa)
NEP-ALL-2008-02-02 (All new papers)
NEP-DEV-2008-02-02 (Development)

References listed on IDEAS
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