Browse > Article
http://dx.doi.org/10.13106/jafeb.2020.vol7.no3.295

Impact of FDI on Private Investment in the Asian and African Developing Countries: A Panel-Data Approach  

TUNG, Le Thanh (Faculty of Economics and Public Management, Ho Chi Minh City Open University)
THANG, Pham Nang (Graduate School, Ho Chi Minh City Open University)
Publication Information
The Journal of Asian Finance, Economics and Business / v.7, no.3, 2020 , pp. 295-302 More about this Journal
Abstract
The paper aims to investigate the impact of foreign direct investment (FDI) on private investment with a sample having 49 developing countries in Asia (17 countries) and Africa (32 countries) during the period of 1990-2017. Unlike previous studies, we split the data into three groups for further analysis, including the Asian, African and the full-panel samples. The results confirm a crowding-in effect which shows that foreign direct investment promotes private investment on all three research samples. Besides, the lagged private investment has a positive and significant effect on itself in the next period which reflects the inertia in the trend of private investment in recipient countries. In the full-panel sample, there are some macro factors such as GDP per capita, trade openness, and electricity that also have a positive and statistically significant impact on private investment. Besides, when more deeply estimate with smaller samples, we find that trade openness and labour force have a positive and significant in Africa, on the other hand, not in Asia. However, the domestic credit variable has a negative and significant effect on private investment only in Asian developing countries. Furthermore, there is only a positive and significant impact of the electricity variable on private investment in Asia.
Keywords
FDI; Private Investment; Developing Country; Crowding-in; Crowding-out;
Citations & Related Records
연도 인용수 순위
  • Reference
1 Aitken, B. J., & Harrison, A. (1999). Do domestic firms benefit from direct foreign investment? Evidence from Venezuela. American Economic Review, 89(3), 605-618.   DOI
2 Adams, S. (2009). Foreign direct investment, domestic investment, and economic growth in Sub-Saharan Africa. Journal of Policy Modeling, 31, 939-949.   DOI
3 Agosin, M. R., & Machado, R. (2005). Foreign investment in developing countries: Does it crowd in domestic investment? Oxford Development Studies, 33(2), 149-162.   DOI
4 Ali, A., & Fei, Y. S. (2016). Impact of Malaysia's Capital Market and Determinants on Economic Growth. Journal of Asian Finance, Economics and Business, 3(2), 5-11. https://doi.org/10.13106/jafeb.2016.vol3.no2.5.   DOI
5 Al-Sadig, A. (2013). The effects of foreign direct investment on private domestic investment: Evidence from developing countries. Empirical Economics, 43, 1-9.   DOI
6 Ang, J. B. (2009). Do public investment and FDI crowd in or crowd out private domestic investment in Malaysia? Applied Economics, 41(7), 913-919.   DOI
7 Borensztein, E. J., Gregorio, D., & Lee, J. W. (1998). How does FDI affect economic growth?. Journal of International Economics, 45(1), 115-135.   DOI
8 Chen, G. S., Yao, Y., & Malizard, J. (2017). Does foreign direct investment crowd in or crowd out private domestic investment in China? The effect of entry mode. Economic Modelling, 61, 409-419.   DOI
9 Choi, Y., & Yuce, A. (2016). Foreign Direct Investment Projects of Korean Companies. Journal of Asian Finance, Economics and Business, 3(1), 5-14. https://doi.org/10.13106/jafeb.2016.vol3.no1.5   DOI
10 Cole, M. A., & Elliott, R. J. (2005). FDI and the Capital Intensity of "Dirty" Sectors: A Missing Piece of the Pollution Haven Puzzle. Review of Development Economics, 9(4), 530-548.   DOI
11 Djokoto, J. G., Srofenyoh, F. Y., & Gidiglo, K. (2013). Domestic and foreign direct investment in Ghanaian agriculture. Agricultural Finance Review, 74(3), 427-440.   DOI
12 Figini, F., & Gorg, H. (2011). Does Foreign Direct Investment Affect Wage Inequality? An Empirical Investigation. The World Economy, 34(9), 1455-1475.   DOI
13 Jude, C. (2019). Does FDI crowd out domestic investment in transition countries?. Economics of Transition and Institutional Change, 27(1), 163-200.   DOI
14 Klein, M., Aaron, C., & Hadjimichael, B. (2001). Foreign direct investment and poverty reduction (Policy Research Working Paper Series No 2613). World Bank, Washington, DC.
15 Kobrin, S. J. (2005). The determinants of liberalization of FDI policy in developing countries: 1991-2001. Transnational Corporations, 14(1), 67-103.
16 Fry, M. J. (1993). FDI in a macroeconomic framework: Finance, efficiency, incentives, and distortions (Policy Research Working papers No. 1141). World Bank, Washington, DC.
17 Ndikumana, L., & Verick, S., (2008). The Linkages between FDI and Domestic Investment: Unravelling the Developmental Impact of Foreign Investment in Sub-Saharan Africa. Development Policy Review, 26(6), 713-726.   DOI
18 Erum, N., Hussain, S., & Yousaf, A. (2016). Foreign Direct Investment and Economic Growth in SAARC Countries. Journal of Asian Finance, Economics and Business, 3(4), 57-66. https://doi.org/10.13106/jafeb.2016.vol3.no4.57   DOI
19 Tung, L.T. (2018). The impact of Remittances on Domestic Investment in Developing Countries: Fresh Evidence from the Asia-Pacific Region. Organizations and Markets in Emerging Economies, 9(2), 193-211.   DOI
20 Tung, L.T. (2019). Does Foreign Direct Investment Really Support Private Investment in an Emerging Economy? An Empirical Evidence in Vietnam. Montenegrin Journal of Economics, 15(1), 7-20.   DOI
21 Herzer, D., & Nunnenkamp, P. (2013). Inward and outward FDI and income inequality: Evidence from Europe. Review of World Economics, 149(2), 395-422.   DOI
22 Szkorupova, Z. (2015). Relationship between Foreign direct investment and domestic investment in selected countries of central and Eastern Europe. Procedia Economics and Finance, 23, 1017-1022.   DOI
23 Omri, A., & Kahouli, B. (2014). The nexus among foreign investment, domestic capital and economic growth: Empirical evidence from the MENA region. Research in Economics, 68(3), 257-263.   DOI
24 Prasanna, N. (2010). Impact of Foreign Direct Investment on Export Performance in India. Journal of Social Sciences, 24(1), 65-71.   DOI
25 Saglam, B. B., & Yalta, A. Y. (2011). Dynamic Linkages among Foreign Direct Investment, Public Investment and Private Investment: Evidence From Turkey. Applied Econometrics and International Development, 11(2), 71-82.
26 Wang, M. (2010). Foreign direct investment and domestic investment in the host country: evidence from panel study. Applied Economics, 42(29), 3711- 3721.   DOI
27 Ucal, M. S. (2014). Panel data analysis of foreign direct investment and poverty from the perspective of developing countries. Procedia - Social and Behaviour Sciences, 108, 1101-1105.   DOI
28 UNCTAD. (2018). World Investment Report: Investment and New Industrial Policies. United Nations, Geneva.
29 Wang, D. T., Gu, F. F., Tse, D. K., & Yim, C. K. (2013). When does FDI matter? The roles of local institutions and ethnic origins of FDI. International Business Review, 22(2), 450-465.   DOI
30 World Bank. (2019). World Development Indicators online database. (May/2019). Washington, DC. Retrieved May 15, 2019, from http://data.worldbank.org/indicator.
31 Wu, G., Sun, Y., & Li, Z. (2010). The crowding-in and crowding-Out effects of FDI on domestic investment in the Yangtze delta region. Transnational Corporations Review, 10(2), 59-79.
32 Xu, G., & Wang, R. (2007). The effect of foreign direct investment on domestic capital formation, trade, and economic growth in a transition economy: evidence from China. Global Economy Journal, 7(2), 1-21.