Abstract
Abstract The aim of this study is to estimate the effects of trade and foreign direct investment (FDI) on domestic investment and test whether these effects depend on the level of income and financial development of countries. For this, the present study modifies the dynamic panel models with threshold effect proposed by Kremer, Bick and Nautz (2013) allowing a greater number of endogenous regressors and uses a data base composed of 95 countries in the period from 1985 to 2013. The results suggest that trade positively affects domestic investment. However, the effect of FDI on domestic investment is negative in both income regimes and in low financial development countries.
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