Foreign Direct Investment Determinants in Algeria: Evidence from ARDL Model and Toda Yamamoto Causality Approach

Abstract

This study aims to test and analyse the determinants of foreign direct investment in Algeria during the period 1980-2020, using the ARDL model and the causality test of Toda Yamamoto. The test of the cointegration shows the existence of a long-term relationship between foreign direct investment and its basic variables GDP, degree of trade openness, exchange rate, foreign exchange reserves minus gold and real interest rate. The results of the error correction model estimates indicate that the error correction coefficient is negative and statistically significant at the 1% level, the adjustment speed is about 63% per year, and an important causal relationship was found between all the variables determined for FDI according to the Toda Yamamoto causality test.