Crowding out (in) effect of FDI on domestic investment in the Middle East and North Africa countries

Theoretically and empirically, FDI may have positive (complementary) or negative (substitution) effect on the host country’s domestic investment. This study aims to examine the existence of crowding out (in) effect of FDI for MENA countries with high- and low- level income. Using the GMM, several regressions were estimated over the periods of 1981-2017 and 2001-2017. The immediate positive effect of FDI on domestic investment was confirmed in all regressions. In addition, the long-run positive effect of FDI on domestic investment in both groups of high- and low- level income countries is strongly confirmed over the 2001-2017, but it was not significant for the 1981–2017 period. To enhance the positive effect, it is suggested that the "forms" and "conditions" of using foreign investment are cosidered. Foreign capital absorption in the form of joint ventures and buy back and also the use of conditions such as export performance and technology transfer will be beneficial.