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DOMESTIC INVESTMENT AND FDI IN DEVELOPING COUNTRIES: THE MISSING LINK

Marc Lautier () and Francois Moreaub
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Marc Lautier: CEPN,Universite Paris 13
Francois Moreaub: CEPN,Universite Paris 13

Authors registered in the RePEc Author Service: François MOREAU

Journal of Economic Development, 2012, vol. 37, issue 3, 1-23

Abstract: This paper investigates the impact of domestic investment on Foreign Direct Investment (FDI) to Developing Countries (DC). While the literature has provided numerous studies on the effects of FDI on growth and investment in host-country, very little is known about how domestic investment itself affects FDI inflows. The paper attempted to fill this gap. Evidence from a large cross-country sample (68 countries), over a long time period (1984-2004), shows that lagged domestic investment has a strong influence on FDI inflows in the host-economy, implying that domestic investment is a strong catalyst for FDI in DC and that Multinational Companies do follow economic development. This result suggests that investment promotion policies directed towards domestic firms will be efficient to attract foreign investors as well.

Keywords: Foreign Direct Investment; Developing Countries; Domestic Investment; Industrial Policy (search for similar items in EconPapers)
JEL-codes: F21 F23 O16 O25 (search for similar items in EconPapers)
Date: 2012
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