FDI and domestic Investment in North Africa: a correlation between substitution and stimulation

Abstract

The objective of this article is to empirically study the relationship between foreign direct investment (FDI) and domestic investment in a sample of six North African countries. The study draws on the theoretical frameworks proposed by Agosin and Mayer (2001) and explores two main hypotheses: (1) multinational companies create a crowding-out effect on local firms, and (2) FDI stimulates national investments. The empirical approach is based on the methodology of Arellano and Bond (1991), applied to panel data covering the period from 1995 to 2023. The results show that FDI leads to a phenomenon of creative destruction, with a short- and long-term crowding-out effect on domestic investment. For the sectoral relationship, we find that FDI may transfer investments from the agricultural sector to the manufacturing sector.