The Effect of Foreign Capital on Domestic Investment in Togo

Theoretically, openness to foreign capital can stimulate domestic investment in developing countries’ or harm their economies by raising the risks of financial crises. It’s why in this paper, we have analyzed the impact of foreign capital on domestic investment in Togo over the period 1970-2008. The results we have obtained by using error correction models indicate that overall foreign capital affects positively and significantly domestic investment. It also appears that foreign direct investment (FDI) and loans are the main channels through which foreign capital has a positive impact on domestic investment in Togo. The impact of portfolio investment is negative, but not significant.