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<p>This study aims to examine whether foreign direct investment (FDI) crowds-in or -out domestic investment (DI) across the primary, manufacturing, and services sectors in developed countries, using a dynamic panel data methodology. Because investment dynamics exhibits a heterogeneous structure, the direction and magnitude of the crowding effect of FDI can vary across sectors. Aggregate-level estimations may mask sector-specific interaction effects. In addition, the models employed incorporates sector-specific control variables tailored to the structural characteristics of each sector, thereby providing a more comprehensive assessment of sectoral investment dynamics. The analysis also demonstrates how sectoral investment responses to major global shocks. The empirical findings for 28 developed economies over the period 2000–2021 reveal that FDI predominantly exerts a crowding-out effect on DI in three major sectors. While sector-specific controls fail to produce systematic effects, the differentiated impacts of the 2008 Global Financial Crisis and the COVID-19 pandemic across sectors suggest that sectoral heterogeneity becomes salient primarily during macroeconomic shock periods.</p>

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The impact of foreign direct investment on domestic investment in developed countries: a sectoral approach

  • 期刊论文

  • 发表日期：

    2026年6月25日

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  • Ece Topoğlu,
  • Pelin Öge Güney

摘要

This study aims to examine whether foreign direct investment (FDI) crowds-in or -out domestic investment (DI) across the primary, manufacturing, and services sectors in developed countries, using a dynamic panel data methodology. Because investment dynamics exhibits a heterogeneous structure, the direction and magnitude of the crowding effect of FDI can vary across sectors. Aggregate-level estimations may mask sector-specific interaction effects. In addition, the models employed incorporates sector-specific control variables tailored to the structural characteristics of each sector, thereby providing a more comprehensive assessment of sectoral investment dynamics. The analysis also demonstrates how sectoral investment responses to major global shocks. The empirical findings for 28 developed economies over the period 2000–2021 reveal that FDI predominantly exerts a crowding-out effect on DI in three major sectors. While sector-specific controls fail to produce systematic effects, the differentiated impacts of the 2008 Global Financial Crisis and the COVID-19 pandemic across sectors suggest that sectoral heterogeneity becomes salient primarily during macroeconomic shock periods.