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The Linkages Between FDI and Domestic Investment: Unravelling the Developmental Impact of Foreign Investment in Sub-Saharan Africa

Leonce Ndikumana and Sher Verick ()

Development Policy Review, 2008, vol. 26, issue 6, 713-726

Abstract: While the recent increase in foreign direct investment (FDI) to African countries is a welcome development, the impact of these resource inflows on economic development remains in doubt. This article argues that a key channel is its effects on domestic factor markets, especially domestic investment, and analyses the two-way linkages between FDI and domestic investment in sub-Saharan Africa. The results suggest, first, that FDI crowds in domestic investment and, secondly, that private investment is a driver of FDI, implying that African countries will gain much from improving the domestic climate. Moreover, there are alternatives to resource endowments as a means of attracting foreign investment to non-resource-rich countries. Copyright (c) The Authors 2008. Journal compilation (c) 2008 Overseas Development Institute..

Date: 2008
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