An economic study on the impact of foreign direct investment on economic development in Algeria

This study aims to evaluate and quantify the impact of Foreign Direct Investment (FDI) on economic development in developing countries, with a specific focus on Algeria during the period 2000–2023 and a brief comparative application to Egypt. The research addresses the crucial role of FDI in fostering economic development by narrowing the gap between domestic savings and investment, while also contributing to economic growth despite persistent challenges such as low local investment rates. An econometric modeling approach was adopted using a multiple linear regression model estimated through the Ordinary Least Squares (OLS) method, where FDI served as the independent variable and domestic investment representing economic development was the dependent variable, along with control variables including GDP, domestic savings, real interest rate, private sector credit, and exports. Standard diagnostic tests (R², t-Student, F-Fisher, Ramsey RESET, LM, ARCH, and Jarque–Bera) confirmed the model’s robustness and reliability. The results revealed a positive and complementary relationship between FDI and domestic investment in Algeria, where a 1% increase in FDI leads to a 0.87% rise in domestic investment. Moreover, t-Student tests indicated that domestic savings and the real interest rate were the only variables showing statistical significance in explaining domestic investment at the 5% level, even though the overall relationship between FDI and domestic investment remained positive.