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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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    Cited by:

    1. 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.
    2. Shahbaz, Muhammad, 2010. "Does financial instability increase environmental pollution in Pakistan?," MPRA Paper 31360, University Library of Munich, Germany, revised 28 Mar 2011.

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