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The Linkages between FDI and Domestic Investment: Unravelling the Developmental Impact of Foreign Investment

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Author Info
Léonce Ndikumana () (University of Massachusetts, Amherst, and UNECA, Addis Ababa)
Sher Verick () (UNECA, P.O.B 3005, Addis Ababa, Ethiopia)

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Abstract

Despite the recent increase in foreign direct investment (FDI) to African countries, these resources have not had a meaningful impact on economic development because of limited 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. JEL Categories: E22; F21; F23

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Paper provided by University of Massachusetts Amherst, Department of Economics in its series Working Papers with number 2007-13.

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Date of creation: Dec 2007
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Handle: RePEc:ums:papers:2007-13

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Keywords: FDI; private investment; public investment; Africa;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Joerg Breitung & M. Hashem Pesaran, 2005. "Unit Roots and Cointegration in Panels," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  2. Dirk Willem te Velde, 2003. "Do Workers in Africa Get a Wage Premium if Employed in Firms Owned by Foreigners?," Journal of African Economies, Oxford University Press, vol. 12(1), pages 41-73, March.
  3. Asiedu, Elizabeth, 2002. "On the Determinants of Foreign Direct Investment to Developing Countries: Is Africa Different?," World Development, Elsevier, vol. 30(1), pages 107-119, January. [Downloadable!] (restricted)
  4. Noorbakhsh, Farhad & Paloni, Alberto & Youssef, Ali, 2001. "Human Capital and FDI Inflows to Developing Countries: New Empirical Evidence," World Development, Elsevier, vol. 29(9), pages 1593-1610, September. [Downloadable!] (restricted)
  5. Smarzynska Javorcik, Beata & Spatareanu, Mariana, 2005. "Do Foreign Investors Care About Labour Market Regulations?," CEPR Discussion Papers 4839, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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