Does Foreign Direct Investment Complement or Substitute Domestic Investment in Botswana?

Mercy Musakwa

doi:10.63356/ace.2026.001

Authors

Mercy Musakwa Boston City Campus https://orcid.org/0000-0001-6280-140X

DOI:

https://doi.org/10.63356/ace.2026.001

Keywords:

foreign direct investment inflows, foreign direct investment outflows, Botswana, non-linear autoregressive distributed lag (NARDL), investment policy

Abstract

The impact of foreign direct investment (FDI) inflows and outflows on domestic investment in Botswana was examined using data for the period from 1990 to 2022. The study was motivated by Botswana’s efforts to attract FDI in support of economic diversification. The question this study sought to answer was: “Does the liberalisation of foreign investment outflows and inflows in Botswana support domestic investment?” The study employed the non-linear autoregressive distributed lag (NARDL) approach to assess whether foreign direct investment complements or the substitutes domestic investment in Botswana. The study found that positive shocks to foreign direct investment inflows complement domestic investment in the short run but substitute it in the long run, while negative shocks to foreign direct investment inflows are insignificant across both time horizons. Positive shocks to foreign direct investment outflows were found to complement domestic investment in the short run but substitute it in the long run. Conversely, negative shocks to foreign direct investment outflows lead to an increase in domestic investment in the long run, although they are insignificant in the short run. Policy implications are also discussed.

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