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Open Access Journal Article

External Reserve and the Elasticity of Substitution between Domestic and Foreign Investment in Africa

by Richard Umeokwobi a,* ,  Victor Ocheni a  and  Isah Auwal a
a
Monetary Policy Department, Central Bank of Nigeria, Abuja, Nigeria
*
Author to whom correspondence should be addressed.
FEL  2024 3(3):32; https://doi.org/10.58567/fel03030002
Received: 21 February 2024 / Accepted: 27 June 2024 / Published Online: 3 December 2024
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Abstract

The Paper investigates the elasticity of substitution between foreign direct investment (FDI) and private domestic investment on the external reserves of some selected 14 African countries. To achieve the objective of the best substitutability of investment suitable for Africa, using data on gross fixed capital formation as a proxy for private domestic investment, inflation, external reserves, and foreign direct investment. From the Empirical literature reviewed, studies on the substitutability of investments in external reserves in Africa have not yet been addressed. The Dynamic General Methods of Moments (DGMM) was employed for the analysis since the African countries are more than the scope of the study which ranges from 2010 to 2022. The results show that foreign direct investment is preferred to private domestic investment in Africa. Additionally, the elasticity of substitution from FDI to domestic private investment was found to be stronger and more elastic than the contrary. Therefore, the study recommends that African countries should focus on strengthening fixed assets to create more revenue from additional fixed assets which would impact more on the external reserves of Africa, by attracting foreigners.

Keywords: Africa, External Reserve; Elasticity of Substitution; Investment ; DGMM;
Copyright: © 2024 by Umeokwobi, Ocheni and Auwal. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

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ACS Style
Umeokwobi, R.; Ocheni, V.; Auwal, I. External Reserve and the Elasticity of Substitution between Domestic and Foreign Investment in Africa. Financial Economics Letters, 2024, 3, 32. https://doi.org/10.58567/fel03030002
AMA Style
Umeokwobi R, Ocheni V, Auwal I. External Reserve and the Elasticity of Substitution between Domestic and Foreign Investment in Africa. Financial Economics Letters; 2024, 3(3):32. https://doi.org/10.58567/fel03030002
Chicago/Turabian Style
Umeokwobi, Richard; Ocheni, Victor; Auwal, Isah 2024. "External Reserve and the Elasticity of Substitution between Domestic and Foreign Investment in Africa" Financial Economics Letters 3, no.3:32. https://doi.org/10.58567/fel03030002
APA style
Umeokwobi, R., Ocheni, V., & Auwal, I. (2024). External Reserve and the Elasticity of Substitution between Domestic and Foreign Investment in Africa. Financial Economics Letters, 3(3), 32. https://doi.org/10.58567/fel03030002

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