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Outward Foreign Direct Investment and Domestic Investment: The Case of Developing Countries

  • Ali J Al-sadiq

Over the past two decades, the growth rate of outward foreign direct investment (FDI) from developing and transition economies has increased significantly. Given the role of physical capital accumulation in determining the economic growth rate, it is important to assess how domestic investment responds to such outflows. This study empirically examines the effects of outward FDI on domestic investment in developing countries. Using data from 121 developing and transition economies over the period 1990–2010, the results suggest that FDI outflows negatively impact the rate of domestic investment.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/52.

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Length: 28
Date of creation: 26 Feb 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/52
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  1. Manuel Agosin & Roberto Machado, 2005. "Foreign Investment in Developing Countries: Does it Crowd in Domestic Investment?," Oxford Development Studies, Taylor & Francis Journals, vol. 33(2), pages 149-162.
  2. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  3. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  4. Joshua Greene & Delano Villanueva, 1991. "Private Investment in Developing Countries: An Empirical Analysis," IMF Staff Papers, Palgrave Macmillan, vol. 38(1), pages 33-58, March.
  5. Guy V.G. Stevens & Robert E. Lipsey, 1988. "Interactions between domestic and foreign investment," International Finance Discussion Papers 329, Board of Governors of the Federal Reserve System (U.S.).
  6. Dierk Herzer & Mechthild Schrooten, 2007. "Outward FDI and Domestic Investment," Discussion Papers of DIW Berlin 679, DIW Berlin, German Institute for Economic Research.
  7. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  8. Martin Feldstein & James R. Hines Jr. & R. Glenn Hubbard, 1995. "The Effects of Taxation on Multinational Corporations," NBER Books, National Bureau of Economic Research, Inc, number feld95-2, September.
  9. Oshikoya, Temitope W, 1994. "Macroeconomic Determinants of Domestic Private Investment in Africa: An Empirical Analysis," Economic Development and Cultural Change, University of Chicago Press, vol. 42(3), pages 573-96, April.
  10. Barry P. Bosworth & Susan M. Collins, 1999. "Capital Flows to Developing Economies: Implications for Saving and Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 143-180.
  11. Martin S. Feldstein & James R. Hines, Jr. & R. Glenn Hubbard, 1995. "Introduction to "The Effects of Taxation on Multinational Corporations"," NBER Chapters, in: The Effects of Taxation on Multinational Corporations, pages 1-6 National Bureau of Economic Research, Inc.
  12. W Hejazi & P Pauly, 2003. "Motivations for FDI and domestic capital formation," Journal of International Business Studies, Palgrave Macmillan, vol. 34(3), pages 282-289, May.
  13. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
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