ISSN: 2226-3624
Open access
This paper investigates the crowding effects of foreign direct investment (FDI) on domestic investment (DI) in 38 Asian countries throughout 1993–2016. A first-generation panel unit root test was undertaken, and the relationship among variables in the long-term period was confirmed by the results generated by Kao-type cointegration and Westerlund-type cointegration estimators. Consequently, the fixed effect regression model suggested a significant but negative effect of FDI on the performance of DI. The long-term crowding effects equation was performed to support the regression results, and it revealed the existence of the crowd-out effect of FDI on DI. In short, FDI is significant in influence the performance of DI although the effect on local firm is unfavourable. Thus this study concludes that FDI inflows by no means always promise a good effect. In fact, instead of helping local firms out, the inflow of FDI may endanger local firms by crowding them out of the Asian business market.
Desai, A. M., Foley, F. C., & Forbes, K. (2004). Financial Constraints and Growth: Multinational and Local Firm Responses to Currency Crises. National Bureau of Economic Research, Inc, NBER Working Papers, 21.
Acar, S., Eris, B., & Tekce, M. (2012). The effect of foreign direct investment on domestic investment: Evidence from MENA countries. Paper presented at the European Trade Study Group 14th Annual Conference, Leuven, Belgium.
Acquah, J. W. (2017). Impact Of Foreign Direct Investment On Domestic Investment: Evidence From Sub-Saharan Africa. University of Lethbridge Lethbridge, Alberta, Canada.
Adams, S. (2009). Foreign Direct investment, Domestic Investment, and Economic Growth in Sub-Saharan Africa. Journal of Policy Modeling, 31(6), 939-949.
Adeoye, B. (2007). Financial sector development and economic growth: The Nigerian experience. Paper presented at the Selected papers for the 2007 Annual Conference of the Nigerian Economic Society held in Abuja, Nigeria.
Agosin, M. R., & Machado, R. (2005). Foreign Investment in Developing Countries: Does it crowd in Domestic Investment? Oxford Development Studies, 33(2), 149-162.
Agosin, M. R., & Mayer, R. (2000). Foreign investment in developing countries: Does it crowd in domestic investment? . UNCTAD Discussion Papers, 146.
Al-Sadig, A. (2013). The effects of foreign direct investment on private domestic investment: Evidence from developing countries. Empirical Economics, 44(3), 1267–1275.
Anastasia, O. C., Omade, S. I., & Osemen, E. J. (2011). Long run relationship between private investment and monetary policy in Nigeria. Journal of Finance and Accounting, 2(6), 30-39.
Badayi, S. A. (2017). A critical view of the theories of international production. Dutse Journal of Economics and Development Studies, 2(2), 151-161.
De Mello, L. R. (1999). Foreign direct investment-led growth: evidence from time series and panel data. Oxford economic papers, 51(1), 133-151.
Demirhan, E., & Masca, M. (2008). Determinants of Foreign Direct Investment flows to developing countries: A cross-sectional analysis. Prague Economic Papers, 17(4), 356-369.
Denisia, V. (2010). Foreign Direct Investment Theories: An Overview of the Main FDI Theories. European Journal of Interdisciplinary Studies, 2(2), 104-110.
Dunning, J. H., & Lundan, S. M. (2008). Multinational enterprises and the global economy (2nd ed.): Edward Elgar Publishing.
Elhiraika, A. B. (2001). Foreign capital inflow, domestic credit and private investment in Swaziland. Eastern Africa Social Science Research Review, 17(2), 69-90.
Emmanuel, O. G., & Kehinde, A. (2018). Domestic Investment and Economy Growth in Nigeria: An Empirical Investigation. International Journal of Business and Social Science, 9(2), 130-138.
Froyen, R. T. (2013). Macroeconomics theories and policies (10 ed.).
Fry, M. J. (1993). Some lessons for South Asia from developing country experience with foreign direct investment: World Bank, South Asia Region, Office of the Chief Economist.
Gocer, I., Mercan, M., & Peker, O. (2014). Effect of foreign direct investments on the domestic investments of developing countries: A dynamic panel data analysis. Journal of Economic and Social Studies, 4(1), 73-90.
Gurara, D., Klyuev, V., Mwase, N., Presbitero, A., Xu, X. C., & Bannister, G. (2017). Trends and challenges in infrastructure investment in low-income developing countries. IMF Working Paper, WP/17/233
Hanif, A., & Jalaluddin, S. (2013). FDI and Domestic Investment in Malaysia. International Proceedings of Economics Development & Research, 76(4), 15-20.
Hanif, A., & Jalaluddin, S. (2014). FDI and Domestic Investment in Malaysia 76(4), 15-20.
Haq, I. U., & Zhu, S. (2016). Does FDI complement domestic investment? A comparative study of India and Pakistan. ????????? ???????? ?????????(5), 140-152.
Hymer, S. H. (1976). The international operations of national firms: A study of direct foreign investment. Massachusetts Institute of Technology,
In-Text Citation: (Budang & Hakim, 2020)
To Cite this Article: Budang, N. A., & Hakim, T. A. (2020). Does Foreign Direct Investment Crowd in or Crowd out Domestic Investment? Evidence from Panel Cointegration Analysis. International Journal of Academic Research in Economics and Managment and Sciences, 9(1), 16–31.
Copyright: © 2020 The Author(s)
Published by Human Resource Management Academic Research Society (www.hrmars.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode