FDI, financial development, and economic growth: International evidence
AbstractPrevious studies have recognized that the benefits from foreign direct investment (FDI) to recipient countries can only be realized when those countries have reached a certain level of financial development. However, the dynamic interrelationships among FDI, financial development, and real output, including the long-run equilibrium as well as causality, have not been analyzed. This paper overcomes this major shortcoming by applying recent advances in panel cointegration and panel error correction models for a set of 37 countries using annual data for the period 1970-2002. For the first time, we explore the directions of causality among FDI, financial development, and economic growth and obtain solid, convincing evidence of a fairly strong long-run relationship. Furthermore, the financial development indicators have a larger effect on economic growth than does FDI. From the panel causality tests, while the evidence of a short-run relationship is weak, that of a long-run relationship among the variables is unequivocal. Overall, the findings underscore the potential gains associated with FDI when coupled with financial development in an increasingly global economy.
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Bibliographic InfoArticle provided by Universidad del CEMA in its journal Journal of Applied Economics.
Volume (Year): XII (2009)
Issue (Month): (November)
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foreign direct investment; financial development; economic growth; panel cointegration; panel causality;
Find related papers by JEL classification:
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
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- Chun-Ping Chang & Chien-Chiang Lee & Meng-Chi Hsieh, 2011. "Globalization, Real Output and Multiple Structural Breaks," Global Economic Review, Taylor and Francis Journals, vol. 40(4), pages 421-444, December.
- Simplice A, Asongu, 2012.
"Linkages between investment flows and financial development: causality evidence from selected African countries,"
38719, University Library of Munich, Germany.
- Asongu Simplice, 2012. "Linkages between Investment Flows and Financial Development: Causality Evidence from Selected African Countries," Working Papers 12/029, African Governance and Development Institute..
- Mina, Wasseem Michel, 2012. "The Institutional Reforms Debate and FDI Flows to the MENA Region: The “Best” Ensemble," World Development, Elsevier, vol. 40(9), pages 1798-1809.
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