Do Foreign Direct Investments (FDI) Crowd In or Crowd Out Domestic Investment in Cote D’ivoire?

Abstract

The study is conducted to analyse the impact of foreign direct investments on domestic investment in Cote d’Ivoire. To this end, annual time series data for the period of 1975-2018 is used. The model is based on the theoretical model of Agosin and Mayer (2001).The study employs the differenced error correction model of Hendry (2006). The results reveal that the speed of adjustment of the variables towards their long-run equilibrium path is 16%. Foreign direct investments crowd out domestic investment in the long run and in the short run economic growth increase gross fixed capital formation. Human capital is significantly positive in the short and long run. Human capital increases investments in Cote d’Ivoire. Policy recommendation emanating from the study is that foreign direct investments is important when Cote d’Ivoire has already a national sector dynamic and well developed domestic companies.

Keywords: Foreign direct investments, domestic investment, crowd in, crowd out, Cote d’Ivoire

JEL Classification: F21, G31, R53, R42, O16