Domestic investment and FDI in developing countries: the missing link

Marc Lautier (1) , François Moreau (2)

1 UR2 - Université de Rennes 2
2 CEPN - Centre d'Economie de l'Université Paris Nord

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.

Mots clés: Foreign Direct Investment; Developing Countries; Domestic Investment; Industrial Policy

Domaines: Sciences de l'Homme et Société

Marc Lautier, François Moreau. Domestic investment and FDI in developing countries: the missing link. Journal of Economic Development, 2012, 37 (3), pp.1-23. ⟨hal-01345422⟩