Effects of Financial Development on Foreign Direct Investments: Evidence from Selected Asian Countries

Article Information
Journal: Business and Economics Research Journal
Title of Article: Effects of Financial Development on Foreign Direct Investments: Evidence from Selected Asian Countries
Author(s): Berna Dogan Basar, Zekayi Kaya, Ibrahim Halil Eksi, Feyyaz Zeren
Volume: 14
Number: 1
Year: 2023
Page: 31-43
ISSN: 2619-9491
DOI Number: 10.20409/berj.2023.402
Abstract
Countries want foreign direct investments to increase for various reasons such as technology transfer, increasing employment, ensuring growth and development, and completing the savings deficiency. Foreign direct investments (FDI) have a significant impact on the development of economies, especially in developing countries. It has been discussed for many years whether financial development has an effect on the direct foreign investments to countries. The aim of this study is to investigate the existence of the relationship between financial development and foreign direct investments in a sample of 39 Asian countries selected for the 2010-2017 period, considering the importance of foreign direct investments for developing countries. In this framework, the effect of financial development levels of target countries on foreign direct investments has been tested with the generalized moments method (GMM). As a result of the analysis, it has been observed that financial development does not affect foreign direct investment in the established model. According to the results, economic development plays an important role in FDI, protecting stronger investors and increasing access to direct external finance by financial development. However, local conditions may limit the extent to which FDI benefits can be realized.

Keywords: Financial Development Index, Foreign Direct Investment, GMM, Developing Countries, Asian Countries

JEL Classification: F21, F43, E40

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