Foreign Direct Investment, Domestic Investment, and Economic Growth: Investment Synergy in The Former Soviet Countries

This study analyzes whether foreign direct investment (FDI) crowds in or crowds out domestic investment (DI) in the Former Soviet Union (FSU). Additionally, it examines the causal relationships between FDI, DI, and economic growth (EG) using balanced panel data from 2002 to 2022. Panel Autoregressive Distributive Lag (Panel - ARDL) estimation results suggest the existence of the crowding-in effect and bidirectional causality between EG and FDI, as well as DI and FDI. Further, this study found a surprising unidirectional causality from DI to EG, implying that economic expansions might not lead to increased domestic investment. These findings imply that the FSU transition economies should prioritize an inclusive business environment and promote synergies between FDI and DI. This can be achieved through policies encouraging investment complementarity, promoting joint ventures, targeting high-spillover sectors, and leveraging growth to attract and retain investment.