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The Role of Financial Markets Development in the Foreign Direct Investment Effect on Economic Growth (The case of D8 with Emphasizing on Iran)

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  • Marzieh Esfandyari

Abstract

Financial development has an important role in absorbing foreign direct investment (FDI) in order to achieve economic growth, according to the emerging literature on FDI. This paper provides support for this hypothesis in the context of D8 countries. The results show that positive impact of FDI on the growth depends on absorptive capacities. The financial development is one of the most important among the capacities. Empirical analysis, using crosscountry data between 2004 and 2013 shows that FDI could not have an independent effect on the growth of D8 countries. Independent effect of FDI on growth could be obtained when FDI is interacted with a threshold level of financial development equal to 3.39. Therefore, focus on the internal changes in the financial markets is necessary in the countries studied before the process of attracting foreign direct investment. More importantly, based on the findings domestic investment can play an ambiguous role in contributing to economic growth.

Suggested Citation

  • Marzieh Esfandyari, 2015. "The Role of Financial Markets Development in the Foreign Direct Investment Effect on Economic Growth (The case of D8 with Emphasizing on Iran)," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 5(10), pages 240-248, October.
    • Handle: RePEc:hur:ijarbs:v:5:y:2015:i:10:p:240-248
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    More about this item

    Keywords

    Foreign Direct Investment (FDI); Financial Development; D8 countries;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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