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Revisiting the nexus between domestic investment, foreign direct investment and external debt in SSA countries: PMG‐ARDL approach
Author(s) -
Fonchamnyo Dobdinga Cletus,
Dinga Gildas Dohba,
Ngum Vahsegmi Carolle
Publication year - 2021
Publication title -
african development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.654
H-Index - 32
eISSN - 1467-8268
pISSN - 1017-6772
DOI - 10.1111/1467-8268.12593
Subject(s) - foreign direct investment , external debt , monetary economics , debt , economics , nexus (standard) , investment (military) , granger causality , international economics , macroeconomics , econometrics , politics , computer science , political science , law , embedded system
This paper investigates the short‐ and long‐run effects of external debt and foreign direct investment (FDI) on domestic investment in sub‐Saharan Africa (SSA) from 1990 to 2017. We employ the pooled mean group ARDL technique and panel Granger causality test to attain the objectives of the study. The result indicates that FDI exerts a positive and statistically significant effect on domestic investment in the short run whereas external debt has an insignificant negative effect. In the long run, the result shows that external debt and FDI have a crowding out effect on domestic investment in SSA. Equally, a circular unidirectional link is found among the variables from domestic investment to FDI, FDI to external debt, and from external debt to domestic investment. We recommend that SSA countries should channel external debt to productive sectors like road infrastructures and energy, control corruption and improve the business environment to attract both domestic and foreign investors.