Foreign Direct Investment, Financial Development and Economic Growth: A Panel Data Analysis

Elya Nabila Abdul Bahri, Abu Hassan Shaari Md Nor, Nor Hakimah Haji Mohd Nor, Tamat Sarmidi

Abstract


ABSTRACT

This study investigates the effects of financial development in enabling foreign direct investment to promote economic growth. A sample of 65 developing countries is examined over the period of 2009 to 2015 with the dynamic panel estimation by using Generalized Method of Moment (GMM). Financial development is measured using three financial indicators and an index of financial development is constructed based on the following indicators: domestic credit to private sector, liquid liabilities and private credit by banks. The results demonstrate that the financial development index contributes positively and higher than each financial development proxy in influencing the effects of FDI on economic growth. However, FDI influence negative effect in the group of countries of low level of financial development. Thus, it suggests that financial development need to be increased and serves as a form of absorptive capacity that enable the positive growth effects of FDI in the recipient countries.

Keywords: Financial development; economic growth; foreign direct investment; developing countries

ABSTRAK

Kajian ini bertujuan untuk melihat kesan pembangunan kewangan sebagai pemangkin kepada pelaburan langsung asing (FDI) untuk menggalakkan pertumbuhan ekonomi. Sampel 65 buah negara sedang membangun bagi tempoh 2009 hingga 2015 digunakan dalam kajian ini. Penganggaran kajian adalah dengan menggunakan panel dinamik, iaitu Kaedah Momen Teritlak (GMM). Pembangunan kewangan diukur dengan menggunakan tiga petunjuk kewangan dan indeks pembangunan kewangan dibina berdasarkan penunjuk berikut: kredit domestik kepada sector swasta, liabiliti kecairan dan kredit swasta oleh bank. Hasil kajian menunjukkan bahawa indeks pembangunan kewangan menyumbang positif dan lebih tinggi daripada setiap proksi pembangunan kewangan secara individu dalam mempengaruhi kesan FDI ke atas pembangunan ekonomi. Walau bagaimana pun, FDI berhubungan secara negatif kepada pertumbuhan ekonomi di kumpulan negara yang mempunyai tahap pembangunan kewangan yang rendah. Oleh itu, kajian ini mencadangkan bahawa pembangunan kewangan perlu dipertingkatkan yang mana ia berfungsi sebagai satu bentuk kapasiti penyerap yang membantu meningkatkan kesan pertumbuhan positif FDI di negara penerima.

Kata kunci: Pembangunan kewangan; pertumbuhan ekonomi; pelaburan langsung asing; negara membangun


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