Effect of foreign direct investment on domestic investment in BRICS


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This study investigated the effect of FDI on domestic investment in BRICS using pooled ordinary least squares (pooled OLS), fixed effects, and fully modified ordinary least squares (FMOLS). Panel data spanning from 1988 to 2020 were used in this study. Mixed results, conflicting findings and divergent views on the FDI-domestic investment nexus prompted the paper to contribute to the existing literature on the subject. The study produced results that show that domestic investment was significantly enhanced by the inflow of FDI. The positive effect of savings on domestic investment was also noted to be positively significant. Results on personal remittances-domestic investment were mixed, (1) significantly positive under the pooled OLS (models 1, 2 and 3) and FMOLS approaches (model 1) and (2) non-significantly positive under the fixed effects (models 1, 2 and 3) and FMOLS (models 2, 3). The complementarity between savings and FDI had a significant positive influence on domestic investment, whilst the positive impact of a combination of FDI and personal remittances on domestic investment was not significant. BRICS nations are therefore encouraged to implement FDI inflow enhancing measures, strategies and policies to increase individual country’s domestic investment levels.

Kunofiwa Tsaurai gratefully acknowledges the moral support from the University of South Africa.

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    • Figure 1. Net FDI (% of GDP) trends for BRICS countries
    • Figure 2. Gross capital formation (% of GDP) trends for BRICS
    • Table 1. Stationarity panel tests – Individual intercept
    • Table 2. Johansen-Fisher approach to co-integration
    • Table 3. Fixed effects
    • Table 4. FMOLS
    • Table 5. Pooled OLS
    • Conceptualization
      Kunofiwa Tsaurai
    • Data curation
      Kunofiwa Tsaurai
    • Formal Analysis
      Kunofiwa Tsaurai
    • Investigation
      Kunofiwa Tsaurai
    • Methodology
      Kunofiwa Tsaurai
    • Project administration
      Kunofiwa Tsaurai
    • Resources
      Kunofiwa Tsaurai
    • Software
      Kunofiwa Tsaurai
    • Validation
      Kunofiwa Tsaurai
    • Writing – original draft
      Kunofiwa Tsaurai
    • Writing – review & editing
      Kunofiwa Tsaurai