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Foreign direct investment, financial development and economic growth

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Author Info
Hermes, Niels
Lensink, Robert (Groningen University)

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Abstract

FDI may help to raise economic growth in recipient countries. Yet, the contribution FDI can make may strongly depend on the circumstances in the recipient countries. This paper argues that the development of the financial system of the recipient country is an important precondition for FDI to have a positive impact on economic growth. A more developed financial system positively contributes to the process of technological diffusion associated with FDI. The paper empirically investigates the role the development of the financial system plays in enhancing the positive relationship between FDI and economic growth. The empirical investigation presented in the paper strongly suggests that this is the case. Of the 67 countries in data set, 37 have a sufficiently developed financial system in order to let FDI contribute positively to economic growth. Most of these countries are in Latin America and Asia.

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File URL: http://irs.ub.rug.nl/ppn/240563131
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Publisher Info
Paper provided by University of Groningen, Research Institute SOM (Systems, Organisations and Management) in its series Research Report with number 00E27.

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Date of creation: 2000
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Handle: RePEc:dgr:rugsom:00e27

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  1. Demirguc-Kunt, Asli, 2006. "Finance and economic development : policy choices for developing countries," Policy Research Working Paper Series 3955, The World Bank. [Downloadable!]
  2. Dutta, Nabamita & Roy, Sanjukta, 2008. "The Role of Foreign Direct Investment on Press Freedom," MPRA Paper 10185, University Library of Munich, Germany, revised 18 Jul 2008. [Downloadable!]
  3. Artelaris, Panagiotis & Arvanitidis, Paschalis & Petrakos, George, 2006. "Theoretical and Methodological Study on Dynamic Growth Regions and Factors Explaining their Growth Performance," Papers DYNREG02, Economic and Social Research Institute (ESRI). [Downloadable!]
  4. Areendam Chanda & Laura Alfaro & Sebnem Kalemli-Ozcan & Selin Sayek, . "How Does Foreign Direct Investment Promote Economic Growth? Exploring the Effects of Financial Markets on Linkages," Departmental Working Papers 2006-13, Department of Economics, Louisiana State University. [Downloadable!]
    Other versions:
  5. Nevine Mokhtar Eid, 2008. "Financial Development: A Pre-Condition for Foreign Direct Spillover Effects in Egypt," Working Papers 12, The German University in Cairo, Faculty of Management Technology. [Downloadable!]
  6. Signe Krogstrup & Linda Matar, 2005. "Foreign Direct Investment, Absorptive Capacity and Growth in the Arab World," HEI Working Papers 02-2005, Economics Section, The Graduate Institute of International Studies. [Downloadable!]
  7. Dalila NICET- CHENAF (GREThA UMR CNRS 5113) & Eric ROUGIER (GREThA UMR CNRS 5113), 2008. "Recent exports matter: export discoveries, FDI and Growth, an empirical assessment for MENA countries," Cahiers du GREThA 2008-22, Groupe de Recherche en Economie Théorique et Appliquée. [Downloadable!]
    Other versions:
  8. Busse, Matthias & Groizard, Jose Luis, 2006. "Foreign direct investment, regulations, and growth," Policy Research Working Paper Series 3882, The World Bank. [Downloadable!]
    Other versions:
  9. Burcu Türkcan & I. Hakan Yetkiner, 2008. "Endogenous Determination of FDI Growth and Economic Growth:The OECD Case," Working Papers 0807, Izmir University of Economics. [Downloadable!]
  10. Burcu Türkcan & Alper Duman & I. Hakan Yetkiner, 2008. "How Does FDI and Economic Growth Affect Each Other? The OECD Case," Papers of the Annual IUE-SUNY Cortland Conference in Economics, in: Proceedings of the Conference on Emerging Economic Issues in a Globalizing World, pages 21-40 Izmir University of Economics. [Downloadable!]
  11. Alaya MAROUANE (Université de Tunis) & Dalila NICET-CHENAF (GREThA-GRES) & Eric ROUGIER (GREThA-GRES), 2008. "The law of growth and attraction: an endogenous model of absorptive capacities, FDI and income for MENA countries," Cahiers du GRES 2008-21, Groupement de Recherches Economiques et Sociales. [Downloadable!]
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  12. Thomas Gries & Manfred Kraft & Daniel Meierrieks, 2008. "Linkages between Financial Deepening,Trade Openness and Economic Development: Causality Evidence from Sub-Saharan Africa," Working Papers 15, University of Paderborn, CIE Center for International Economics. [Downloadable!]
  13. Kevin Sylwester, 2005. "Foreign direct investment, growth and income inequality in less developed countries," International Review of Applied Economics, Taylor and Francis Journals, vol. 19(3), pages 289-300, July. [Downloadable!] (restricted)
  14. repec:bep:glecon:5:2007:1:8 is not listed on IDEAS
  15. Busse, Matthias & Groizard, José Luis, 2006. "FDI, Regulations and Growth," Proceedings of the German Development Economics Conference, Berlin 2006 6, Verein für Socialpolitik, Research Committee Development Economics. [Downloadable!]
  16. KIMURA Hidemi & TODO Yasuyuki, 2007. "Is Foreign Aid a Vanguard of FDI? A Gravity-Equation Approach," Discussion papers 07007, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]
  17. Laura Alfaro & Andrew Charlton, 2007. "Growth and the Quality of Foreign Direct Investment: Is All FDI Equal?," CEP Discussion Papers dp0830, Centre for Economic Performance, LSE. [Downloadable!]
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