The Nexus Between Foreign Direct Investment and Domestic Investment in Myanmar: A Panel ARDL Approach

Abstract

Foreign direct investment is the main driver of the growth. The development of Myanmar mainly depends on FDI and domestic investment. The objective of this article is to analyze the relationship between FDI and domestic investment in Myanmar from 1990 to 2020. The mean group estimator ARDL model was applied in this empirical study to evidence the relationship between them. This study employed newly collected sector-specific FDI inflows and domestic investment data for detailed examination. In line with the target of this article, the question arises whether FDI crowds in or crowds out DI in Myanmar. According to the outcomes, FDI and DI have a positive and insignificant relationship in the short-run results. However, they are positive and statistically significant in the long-run. There are unique causalities between FDI and DI; between EMP and DI and between EXCH and DI. Hence, FDI does Granger-cause DI. Thus, FDI crowds in DI in the short- and long-hauls in Myanmar. Therefore, the Government should actively do investment promotion for the investors to attract more FDI inflows into the country by facilitating business to sustain the country’s development and encourage the local businesspeople by educating how to use modern technology to shift from labor- to capital-intensive industries for increasing production and efficiency in Myanmar. Implications of the finding are explained with theoretical contributions, recommendations and research limitation are discussed.