The causal relationships between Foreign Direct Investment (FDI), Domestic Investment (DI) and Economic Growth (GDP) in North African non-oil producing Countries: Empirical Evidence from Cointegration Analysis

Hosein Elboiashi (), Farhad Noorbakhsh, Alberto Paloni and Celine Azemar
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Hosein Elboiashi: Economic Department, Faculty of Law, business and Social Sciences, Glasgow University, Gilbert Scott Building, Glasgow G12 8QQ, UK

Advances In Management, 2009, vol. 2, issue 11

Abstract: This paper investigates the causal relationships between foreign direct investment (FDI), domestic investment (DI) and economic growth (GDP) in Egyptian, Moroccan and Tunisian economies. Thus, this paper applies a cointegration time series techniques; vector error correction (VEC) model, Granger causality test within the sample period and impulse response functions (IRFs) and variance decomposition analysis (VDCs) over the sample period for the period from 1970 to 2006. This paper finds that FDI affects negatively DI and growth (GDP) in the short-run and positively in the long-run. In addition, there is uni-directional causality between FDI and growth (GDP) in Egypt and Morocco, and bi-directional causality between FDI and growth (GDP) in Tunisia. DI has played a great role for driving FDI into these countries more than growth (GDP). Also, FDI is more effective than DI for promoting growth (GDP). FDI is more effective for enhancing DI than growth (GDP). Furthermore, the results indicate that FDI crowds-out DI in the short-run and crowds-in DI in the long-run.

Date: 2009

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Persistent link: http://EconPapers.repec.org/RePEc:mgn:journl:v:2:y:2009:i:11:a:2

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