Impact of Foreign Direct Investment on Domestic Investment in Sudan: "Giving Hope Hypothesis"

To interpret the role that FDI plays in promoting domestic investment, this paper proposes and provides an empirical test for “giving hope hypothesis”. The postulated hypothesis states that, along with its widely recognized contributions in augmenting domestic investment in recipient countries, the presence of FDI could also increase growth in domestic investments by giving hope in domestic business environment. To validate this hypothesis, the paper utilizes time series data on Sudan covering the period from 1980 to 2013. The empirical analysis is performed using co-integration and error correction vector (VECM) econometric techniques. The findings indicate the existence of a complementary relationship between FDI and domestic investment in Sudan, supporting the argument of giving hope hypothesis. Moreover, and as expected, the rest of the variables included in the analysis have displayed the anticipated signs.