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The Impact of Foreign Direct Investment on Domestic Investment: Evidence from Sudan

Yassin Elshain Yahia, Liu Haiyun, Muhammad Asif Khan, Sayyed Sadaqat Hussain Shah and Mollah Aminul Islam
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Yassin Elshain Yahia: School of Economics, Huazhong University of Science and Technology, 1037 Luoyu Road, Hongshan District, Wuhan 430074, P.R. China
Liu Haiyun: School of Economics, Huazhong University of Science and Technology, 1037 Luoyu Road, Hongshan District, Wuhan 430074, P.R. China
Muhammad Asif Khan: School of Economics, Huazhong University of Science and Technology, 1037 Luoyu Road, Hongshan District, Wuhan 430074, P.R. China
Sayyed Sadaqat Hussain Shah: National College for Business Administration and Economics, DHA Lahore, I.R. Pakistan
Mollah Aminul Islam: School of Economics, Huazhong University of Science and Technology, 1037 Luoyu Road, Hongshan District, Wuhan 430074, P.R. China.

International Journal of Economics and Financial Issues, 2018, vol. 8, issue 6, 1-10

Abstract: This study applies the ARDL Bounds test to cointegration and Granger Causality to examine the impact of foreign direct investment (FDI) inflows on domestic investment of Sudan over the period 1976-2016. Empirical results show a crowd out effect of FDI on Sudan’s domestic investment, and the results confirm the cointegration relationships. Economic growth, exchange rate, macroeconomic stability and natural resource rent have shown short and long-run significant association with domestic investment, whereas, foreign direct investment appears as a long-term determinant. Moreover, the ECM reveals that system corrects previous period disequilibrium at an annual rate of 35%. The Granger Causality results conclude unidirectional causal flows from FDI, exchange rate, macroeconomic stability, natural resource rent, and trade openness to domestic investment. The study suggests some policy measures to design effective policies for macroeconomic stability; controlling inflation, flexible exchange rate spurring economic growth, and as well as developing effective strategies to encourage the mode of FDI that can create technological and market share spillover.

Keywords: FDI; Domestic Investment; crowd-in; crowd-out (search for similar items in EconPapers)
JEL-codes: E22 F23 O55 (search for similar items in EconPapers)
Date: 2018
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