Foreign Direct Investment, Economic Growth, and Financial Sector Development: A Comparative Analysis

In this study, patterns of foreign direct investment (FDI) and economic growth are investigated among select developed and East Asian countries. In particular, it aims to investigate the development of the domestic financial sector in transferring the technological diffusion embodied in FDI inflows...

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Bibliographic Details
Published in:ASEAN economic bulletin 2004-12, Vol.21 (3), p.278-289, Article AE21-3b
Main Authors: Choong, Chee-Keong, Yusop, Zulkornain, Soo, Siew-Choo
Format: Article
Language:English
Subjects:
Causality
Comparative analysis
Development economics
East Asia
Economic aspects
Economic development
Economic growth
Economic growth models
Economic growth theories
Economic models
Economics
Efficiency
Finance
Financial development
Financial services
Foreign direct investment
Foreign direct investments
Foreign investment
Foreign investments
GDP
Gross Domestic Product
Growth models
Human capital
Hypotheses
International finance
Investigations
Long run economic growth
Multivariate analysis
Null hypothesis
Profitability
Regional studies
Technology transfer
Variables
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Summary:In this study, patterns of foreign direct investment (FDI) and economic growth are investigated among select developed and East Asian countries. In particular, it aims to investigate the development of the domestic financial sector in transferring the technological diffusion embodied in FDI inflows to the chosen countries. It is evident in all the countries under study that both FDI and economic growth are not cointegrated by themselves directly, but rather through their dynamic interaction with the development of the domestic financial sector. Our results prove that the presence of FDI inflows creates a positive technological diffusion in the long run only if the evolution of the domestic financial system has achieved a certain minimum level. From the short-run causality models, the striking similarity in the behaviour of FDI on economic growth across countries suggests the possibility of common financial sector development in different countries, despite differences in their fiscal policy, industrial development, and other domestic determinants.
ISSN:0217-4472
2339-5095
1793-2831
2339-5206
DOI:10.1355/ae21-3b