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An Assessment of the Impact of Financial Development on Foreign Direct Investment in Emerging Markets

Erickson Precious Pwaamo, Muhammad Bello Abubakar, Bamanga Umar, and, Dahiru Mohammed Yole

Abstract

Financial development is one of the most important economic variables that attracts foreign direct investments (FDI) especially in emerging economies. This study examines the impact of financial development on foreign direct investment in emerging markets for the period 2003 to 2023. The study focused on ten emerging economies which includes India, Brazil, South Korea, Indonesia, Mexico, Saudi Arabia, Turkey, China, Taiwan and Poland. Panel datasets were collected from World Bank database and analyzed using descriptive analysis, correlation analysis, Heteroskedasticity test, Multicollinearity test, Normality test, Hausman test as well as the panel fixed and random effect techniques. The findings of the study revealed that financial development significantly enhances FDI inflows in emerging markets. The study recommends among others that there should be policy reforms aimed at strengthening financial institutions, enhancing credit accessibility, and developing financial markets, which will attract foreign direct investment and promote economic growth of emerging markets.

Keywords

Financial DevelopmentFinancial systemEconomic growthForeign Direct

References

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