Abstract
Background: Whilst the literature on the complementarity and substitutability of foreign direct investment (FDI) on domestic investment (DI) is not uncommon, the facet of food manufacturing is non-existent. This paper fills this void by investigating the effect of FDI on DI in the food manufacturing sector for developing, economies in transition and developed countries. Methods: Using an unbalanced panel data of 49 countries from 1993 to 2016, from FAOSTAT, estimated by the system generalised method of moments (GMM), the Wald statistics for the short and long-run effects of FDI on DI were computed for the development groups. Results: Developed economies experienced a crowd-out effect of FDI on DI in the short run, whilst the others experienced no significant effect. In the case of the long run, food manufacturing sectors of all three development groups exhibited a crowd-out effect. The effect in the long run for all development groups together is a crowd-in. Analysing all country groups together could mask the results of the various country groups. Conclusions: A review of investment policies to priorities FDI entry mode that favour domestic investment is needed. Improvement of the investment regulatory and administrative efficiency among others are recommended.
Highlights
In food manufacturing, relatively bulky, perishable and typically inedible raw materials are converted into more useful, shelf-stable and palatable foods or potable beverages with the aid of various unit operations and technologies (FAO, 2010; Stadler et al, 2020)
The positive value of foreign direct investment (FDI) implies that there has been a transfer of FDI from one economy to the other
This paper fills a void in the literature by investigating the effect of FDI on domestic investment (DI) in the food manufacturing sector for developing, economies in transition and developed countries
Summary
Relatively bulky, perishable and typically inedible raw materials are converted into more useful, shelf-stable and palatable foods or potable beverages with the aid of various unit operations and technologies (FAO, 2010; Stadler et al, 2020). As the sector needs more investments for growth and development (Hine, 2015; Primanthi, 2015), many countries have pursued policies to attract foreign direct investment (FDI) into the food manufacturing sectors of their respective economies to reap benefits including investment accumulation, technology transfer and job creation (de Mello Jr, 1997; Farla et al, 2016; Kosova, 2010) Aside from these benefits, there is evidence that inflow of FDI compliments domestic investment (DI) (Farla et al, 2016; Mileva, 2008) or substitute DI (Budang & Hakim, 2020; Oualy, 2019) for whole economy cases as well as the agricultural sector (Djokoto et al, 2014). Whilst the literature on the complementarity and substitutability of foreign direct investment (FDI) on domestic investment (DI) is not uncommon, the facet of food manufacturing is non-existent This paper fills this void by investigating the effect of FDI on DI in the food manufacturing sector for developing, economies in transition and developed countries. Improvement of the investment regulatory and administrative efficiency among others are recommended
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