Article2008

Foreign direct investment and domestic investment in the host country: evidence from panel study

110 citations0/0 files storedApplied Economics

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International Business and FDI Corporate Finance and Governance Global trade and economics

Abstract

This article examines the impact of inward Foreign Direct Investment (FDI) on host countries’ domestic investment. Utilizing data from 50 countries over the period of 1970 to 2004, we find that inward FDI has a negative contemporaneous effect on domestic investment, while the cumulative effect of FDI over time tends to be positive. In addition, we separately study FDI in Developed Countries (DCs) and Less Developed Countries (LDCs). The effect of contemporaneous FDI on domestic investment is negative in DCs, and the cumulative effect of FDI is neutral. Strong evidence suggests that the contemporaneous effect of FDI on domestic investment is neutral in LDCs, while the cumulative effect of FDI is positive.

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References

1998How does foreign direct investment affect economic growth?1999Does Trade Cause Growth?1999Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela 2017World Investment Report 2003FDI and economic growth: the role of local financial markets 1996Foreign Direct Investment and Growth in EP and is Countries 1999Foreign direct investment as a catalyst for industrial development 1995How Does Foreign Direct Investment Affect Economic Growth?

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