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

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,...

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Bibliographic Details
Published inDevelopment policy review Vol. 26; no. 6; pp. 713 - 726
Main Authors Ndikumana, Léonce, Verick, Sher
Format Journal Article
LanguageEnglish
Published Oxford, UK Blackwell Publishing Ltd 01.11.2008
Subjects
Africa
Development economics
Development strategies
Development studies
Economic development
Economic impact analysis
Economics
Endowment
FDI
Foreign direct investment
Foreign investment
Foreign investments
Investment policy
Investments
Policy studies
private investment
public investment
Studies
Sub-Saharan Africa
Waivers
Sub-Saharan Africa
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Summary: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.
Bibliography:ark:/67375/WNG-0RLZTM40-3
istex:BAC55D275137A60D3A6D53A9726D9A52CA55461F
ArticleID:DPR430
The findings and views reported in the paper are those of the authors and should not be attributed to either the African Development Bank or the United Nations.
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ISSN:0950-6764
1467-7679
DOI:10.1111/j.1467-7679.2008.00430.x