Foreign Direct Investment and Domestic Private Investment in Sub-Saharan African Countries: Crowding-In or Out ?

This paper investigates the relationship between FDI and private investment in Sub-Saharan Africa (SSA), using a sample of 40 countries over 1980-2017. To disentangle short term from long-term dynamics, our empirical analysis is based on Pooled Mean Group (PMG), Mean Group (MG) and Dynamic Full Effects (DFE) models. We find that FDI has little effect on private investment in the short run but significant crowding-in effects in the long-run: a one percentage point increase of the share of FDI in GDP leads to a 0.29% rise in private investment, in the long run. Our results also show that FDI interacts with public domestic investment to boost these positive effects. Finally, we show that the impact of FDI on domestic private investment is stronger in non-natural resource exporting diversified countries as opposed to non-diversified commodity exporters.

Keywords: Financial Development, Domestic Investment, FDI, Crowding-in/Crowding-out Effects

JEL Classification: G11, O11, O16

Suggested Citation: Suggested Citation

RPS Submitter, Banque de France and Askandarou, Diallo and Jacolin, Luc and Rabaud, Isabelle, Foreign Direct Investment and Domestic Private Investment in Sub-Saharan African Countries: Crowding-In or Out ? (June 2021). Banque de France Working Paper No. 816, Available at SSRN: https://ssrn.com/abstract=3866402 or http://dx.doi.org/10.2139/ssrn.3866402