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Financial Development And Domestic Investment Dynamics In Emerging Markets

Author

Listed:
  • DANQUAH, David Aboagye

    (Department of Finance, Risk Management and Banking, University of South Africa, South Africa)

  • TSAURAI, Kunofiwa

    (Department of Finance, Risk Management and Banking, University of South Africa, South Africa)

Abstract

This study investigates the direct, moderating, and threshold effects of financial development on domestic investment in 15 emerging economies, focusing on whether human capital and technological development strengthen the finance-investment relationship and whether a critical level of financial development is required to maximise investment. The study employs an advanced dynamic panel framework using the Double-D System, Full GMM, CSD-Robust GMM, and Dynamic Fixed-Effects Threshold estimators on panel data covering 15 emerging economies from 2005 to 2024. The results reveal that financial development significantly promotes domestic investment. Moreover, human capital and technological development positively moderate this relationship, while threshold analysis identifies a financial development threshold of 0.524, beyond which the investment-enhancing effect of financial development becomes substantially stronger. The findings remain robust across alternative dynamic estimators. The findings imply that financial sector reforms should extend beyond financial deepening by simultaneously strengthening human capital, technological capability, and institutional quality to maximise domestic investment in emerging economies.

Suggested Citation

  • DANQUAH, David Aboagye & TSAURAI, Kunofiwa, 2026. "Financial Development And Domestic Investment Dynamics In Emerging Markets," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 30(3), pages 55-90, September.
    • Handle: RePEc:vls:finstu:v:30:y:2026:i:3:p:55-90
    DOI: https://doi.org/10.65672/fs.2026.3.3
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    Keywords

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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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