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Foreign Direct Investment, Financial Development and Economic Growth: Panel Data Analysis

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  • Chee-Keong Choong
  • Siew-Yong Lam

Abstract

: Using Generalized Method of Moments (GMM) panel data analysis to examine the relationship between Foreign Direct Investment (FDI), financial development and economic growth in a group of 70 developed and developing countries from 1988 to 2002, it is found that the impact of FDI on economic growth is ambiguous. FDI may either increase or decrease the growth rate of the economy, depending on the financial market development indicators used in the study. The findings, however, support the notion that a certain level of financial sector development is a significant prerequisite for FDI to have a positive effect on economic growth. Policy implications are clear that since it has been stated that the economic performance depends to some extent on the development of domestic financial sector, effort should be made to reform and improve the development of domestic financial and banking sector in order to benefit more from the presence of FDI.

Suggested Citation

  • Chee-Keong Choong & Siew-Yong Lam, 2011. "Foreign Direct Investment, Financial Development and Economic Growth: Panel Data Analysis," The IUP Journal of Applied Economics, IUP Publications, vol. 0(2), pages 57-73, April.
    • Handle: RePEc:icf:icfjae:v:10:y:2011:i:2:p:57-73
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    Citations

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    Cited by:

    1. Jumanne, Bilali Basesa & Keong, Choong Chee, 2017. "Foreign Direct Investment and Public Sector Management and Institutions: The Acquaintances in Sub-Saharan Africa (SSA) Low-Income Economies," African Journal of Economic Review, African Journal of Economic Review, vol. 5(2), July.
    2. Muhammad Shahbaz & Miroslav Mateev & Salah Abosedra & Muhammad Ali Nasir & Zhilun Jiao, 2021. "Determinants of FDI in France: Role of transport infrastructure, education, financial development and energy consumption," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 1351-1374, January.
    3. Oluwatosin Adeniyi & Bello Ajide & Afees Salisu, 2015. "Foreign Capital Flows, Financial Development And Growth In Sub-Saharan Africa," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 40(3), pages 85-103, September.
    4. Shahbaz, Muhammad, 2010. "Does financial instability increase environmental pollution in Pakistan?," MPRA Paper 31360, University Library of Munich, Germany, revised 28 Mar 2011.
    5. Najeeb Muhammad Nasir & Mohammed Ziaur Rehman & Nasir Ali, 2017. "Foreign Direct Investment, Financial Development and Economic Growth," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 8(4), pages 228-239, October.
    6. Elya Nabila Abdul Bahri & Abu Hassan Shaari Md Nor & Tamat Sarmidi & Nor Hakimah Haji Mohd Nor, 2019. "The Role of Financial Development in the Relationship Between Foreign Direct Investment and Economic Growth: A Nonlinear Approach," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 22(02), pages 1-32, June.
    7. Imtiaz Arif Lubna Khan Syed Ali Raza, 2018. "External Resources and Economic Growth: An Empirical Analysis of South Asian Countries," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 21(2), pages 1-17, November.
    8. Basesa Jumanne, Bilali & Chee Keong, Choong, 2018. "Foreign Direct Investment and Natural Resources in Sub-Saharan Africa: The Role of Institutions towards the Africa We Want “2063 Vision”," African Journal of Economic Review, African Journal of Economic Review, vol. 6(1), January.
    9. Jithin P & Suresh Babu M, 2022. "Does foreign direct investments in financial services induce financial development? Lessons from emerging economies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4399-4411, October.

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