Do FDI and Public Investment Crowd in/out Domestic Private Investment in the SADC Region?

Abstract

Our study examines the crowding-in/out effect of foreign direct investment and government expenditure on private domestic investment for 15 members of the Southern African Development Community (SADC) for the period 1991–2019. The study employed the panel Pool Mean Group (PMG)/ARDL technique in estimating the short-run and long-run cointegration relationships between FDI, government capital expenditure and domestic private investment and adds three more variables for control purposes (interest rate, GDPgrowth rate and trade openness). For the full sample, FDI crowds-in domestic investment whilst government crowds-out domestic investment. However, in performing a sensitivity analysis, in which the sample was segregated into low and high income economies, both FDI and government investment crowd-in domestic investment whilst government expenditure crowds-out domestic investment
in lower income SADC countrieswith no effect of FDI on domestic investment. Policy implications are discussed.

https://doi.org/10.26493/1854-6935.19.3-25