Does FDI Crowd out Domestic Investment-A Comparison of Developing and Developed Countries

Nowadays, foreign direct investment, known as FDI, occupies an increasingly significant role in the part of economic growth all over the world, especially in developing countries. However, whether FDI promote or crowds out the domestic investment, another vital influential factor in economic growth, is an issue which should not be ignored. This article uses a modified theoretical model to test this effect during the period 1984-2007 in countries which are grouped into two kinds: developing countries and developed countries. The conclusion is that FDI plays a neutral role in developing countries while it crowds out the domestic investment in developed countries