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FDI, financial development and economic growth: evidence of causality from East and South East Asian countries

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  • Abdus Samad
  • Muhammad Akhtaruzzaman

Abstract

This paper empirically investigates causal relationship - short run and long run - among foreign direct investment (FDI), financial development, and economic growth in ten East and South East Asian countries using vector error correction model (VECM) and VEC Granger causality/Wald Exogeniety tests. The paper finds that in Singapore, Malaysia and China, GDP growth Granger causes FDI. On the other hand, financial market development (FMD) Granger causes FDI in Singapore, Malaysia, and Sri Lanka. Bidirectional Granger causality between GDP and FDI is observed in Indonesia and India. FDI does not Granger cause economic growth (GDP) in all ten countries under study during 1980-2010. It suggests that FDI follows either economic growth or financial market development in these countries.

Suggested Citation

  • Abdus Samad & Muhammad Akhtaruzzaman, 2014. "FDI, financial development and economic growth: evidence of causality from East and South East Asian countries," Global Business and Economics Review, Inderscience Enterprises Ltd, vol. 16(2), pages 202-213.
    • Handle: RePEc:ids:gbusec:v:16:y:2014:i:2:p:202-213
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    Cited by:

    1. 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.
    2. Haojue Zhang & Yifu Sun & Changyu Meng, 2023. "Sustainable Urban Competitiveness from a Financial Development Perspective: An Empirical Study of China," Sustainability, MDPI, vol. 15(5), pages 1-18, February.

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