Back to Search Start Over

FOREIGN DIRECT INVESTMENT, FINANCIAL DEVELOPMENT, AND ECONOMIC GROWTH: A COINTEGRATION MODEL.

Authors :
Suliman, Adil H.
Elian, Mohammad I.
Source :
Journal of Developing Areas. Summer2014, Vol. 48 Issue 3, p219-243. 26p.
Publication Year :
2014

Abstract

This paper examines causalities among foreign direct investment (FDI), economic growth (GTH), and financial development proxied by both equity market size (EQM) and bank credit to private sectors (BANK). We use a structural cointegration model with a vector error correction (VEC) mechanism to test for the short-term dynamics of the model. The results show that there is a reinforcing causal relationship between FDI and EQM, and between EQM and GTH in the short term, and that these variables cointegrate in the long term. As far as practical implications are concerned, the results reinforce that developed financial markets are an essential precondition for the positive impact of FDI on economic growth, reflecting host countries' ability to exploit FDI more efficiently. Moreover, the paper provides further substance for the notion that a country with a well-developed financial market gains significantly from FDI inflow. [ABSTRACT FROM AUTHOR]

Details

Language :
English
ISSN :
0022037X
Volume :
48
Issue :
3
Database :
Academic Search Index
Journal :
Journal of Developing Areas
Publication Type :
Academic Journal
Accession number :
97125403
Full Text :
https://doi.org/10.1353/jda.2014.0041