The Effect of Financial Development on Foreign Direct Investment

Authors

1 Department of Economics, Islamic Azad University (Science & Research branch), Tehran, Iran

2 Department of Economics, Allameh Tabataba'ie University, Tehran, Iran

3 Department of Economics, Islamic Azad University (Science and Research Branch), Tehran, Iran

4 Department of Economics, Islamic Azad University (South Tehran Branch), Faculty of Economy and Management, Tehran, Iran

Abstract

he relationship between financial development indexes and foreign direct investment is studied in this paper. The main objective, is to examine the effects of financial development indicators in two groups (the financial markets index and the financial institution index) on FDI absorption rate. The effects of these indicators have been evaluated in the form of panel data model for 11 countries including (Saudi Arabia, Argentina, Sweden, Poland, Belgium, Iran, Thailand, Nigeria,  Austria,  Norway and  Venezuela) in period 1990 to 2014. The results show that when the financial institutional index including (FID, FIE), financial market index including (FMD), GDP & DCP increase the FDI increases and when FIA, FMA & FME increase, the FDI decreases. So Expanding the capital market will increase FDI attraction in sample countries, and for countries with a weak capital markets, the financial market access index and the financial institution efficiency index  has a significant negative effect on FDI absorption and vice versa.
 

Keywords