Foreign direct investment and domestic private investment in sub-Saharan Africa: crowding-in or out?

Mercredi | 2020-09-24
B103 – 11h30

Askandarou Cheik DIALLO – Isabelle RABAUD – Luc JACOLIN

Abstract : This paper investigates the relationship between foreign direct investment (FDI) and private investment in Sub-Saharan Africa, using a sample of SSA 40 countries over 1980-2013. To disentangle short term from long-term dynamics, and take into account possible endogeneity issues, our empirical analysis is based on Pooled Mean Group (PMG), Mean Group (MG) and Dynamic Full Effects (DFE). We find that FDI has little effect on private investment in the short run but significant crowding-in effects in the long-run. Our results also show that FDI interacts with public domestic to boost these positive long-term 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 undiversified commodity exporters. These results may bring new light to sometimes conflicting results found in the current FDI literature and to how public investment leverages FDI to spur private sector growth, thereby providing useful insights on the design and sequencing of related public policy.