IDEAS home Printed from https://ideas.repec.org/a/pal/compes/v67y2025i1d10.1057_s41294-024-00239-9.html
   My bibliography  Save this article

Foreign Direct Investment, Institutions, and Domestic Investment in Developing Countries: Is there a Crowding-Out Effect?

Author

Listed:
  • Kadoukpè Gildas Magbondé

    (University of Cape Town (UCT))

  • Djiby Racine Thiam

    (University of Cape Town (UCT))

  • Mamadou Abdoulaye Konté

    (Université Gaston Berger (UGB))

Abstract

Despite using a common database for a sample of 46 developing countries to evaluate the impact of foreign direct investment (FDI) inflows on domestic investment (DI), two recent articles on the subject (Morrissey and Udomkerdmongkol in World Dev 40(3):437–445. 10.1016/j.worlddev.2011.07.004, 2012 and Farla et al. in World Dev 88:1–9, 2016. 10.1016/j.worlddev.2014.04.008), produced conflicting results. The current paper contributes to the debate by using a larger panel database of 105 developing countries from 2002 to 2018 while controlling for financial development. We make use of the system generalized method of moments (S-GMM). Our findings do not support a crowding-in effect of FDI; instead, we found that FDI crowded out domestic investment. The findings underscore that institutions played no role in the FDI–DI nexus. Furthermore, there is no strong evidence that good institutions promoted investment in developing countries from 2002 to 2018.

Suggested Citation

  • Kadoukpè Gildas Magbondé & Djiby Racine Thiam & Mamadou Abdoulaye Konté, 2025. "Foreign Direct Investment, Institutions, and Domestic Investment in Developing Countries: Is there a Crowding-Out Effect?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 67(1), pages 221-261, March.
    • Handle: RePEc:pal:compes:v:67:y:2025:i:1:d:10.1057_s41294-024-00239-9
    DOI: 10.1057/s41294-024-00239-9
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1057/s41294-024-00239-9
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1057/s41294-024-00239-9?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    FDI; Domestic investment; Institutions; Developing countries; GMM estimators;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • F30 - International Economics - - International Finance - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:compes:v:67:y:2025:i:1:d:10.1057_s41294-024-00239-9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave-journals.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.