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Revisiting the nexus between domestic investment, foreign direct investment and external debt in SSA countries: PMG‐ARDL approach

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  • Dobdinga Cletus Fonchamnyo
  • Gildas Dohba Dinga
  • Vahsegmi Carolle Ngum

Abstract

This paper investigates the short‐ and long‐run effects of external debt and foreign direct investment (FDI) on domestic investment in sub‐Saharan Africa (SSA) from 1990 to 2017. We employ the pooled mean group ARDL technique and panel Granger causality test to attain the objectives of the study. The result indicates that FDI exerts a positive and statistically significant effect on domestic investment in the short run whereas external debt has an insignificant negative effect. In the long run, the result shows that external debt and FDI have a crowding out effect on domestic investment in SSA. Equally, a circular unidirectional link is found among the variables from domestic investment to FDI, FDI to external debt, and from external debt to domestic investment. We recommend that SSA countries should channel external debt to productive sectors like road infrastructures and energy, control corruption and improve the business environment to attract both domestic and foreign investors.

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  • Dobdinga Cletus Fonchamnyo & Gildas Dohba Dinga & Vahsegmi Carolle Ngum, 2021. "Revisiting the nexus between domestic investment, foreign direct investment and external debt in SSA countries: PMG‐ARDL approach," African Development Review, African Development Bank, vol. 33(3), pages 479-491, September.
    • Handle: RePEc:bla:afrdev:v:33:y:2021:i:3:p:479-491
    DOI: 10.1111/1467-8268.12593
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    Cited by:

    1. Tii N. Nchofoung & Simplice A. Asongu & Arsène A. Njamen Kengdo & Elvis D. Achuo, 2022. "Linear and non‐linear effects of infrastructures on inclusive human development in Africa," African Development Review, African Development Bank, vol. 34(1), pages 81-96, March.
    2. Elvis Dze Achuo, 2022. "The nexus between crude oil price shocks and environmental quality: empirical evidence from sub-Saharan Africa," SN Business & Economics, Springer, vol. 2(7), pages 1-15, July.
    3. Elvis Dze Achuo & Tii N. Nchofoung & Simplice A. Asongu & Gildas Dohba Dinga, 2021. "Unravelling the Mysteries of Underdevelopment in Africa," Working Papers of the African Governance and Development Institute. 21/073, African Governance and Development Institute..
    4. Gigamon Joseph Prah & Charles Ofori, 2022. "External Debt and Foreign Investment: An Empirical Analysis on the Economy of Ghana," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 10(2), pages 54-67.

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