Soumaré, Issouf and TCHANA TCHANA, Fulbert (2011): Causality between FDI and Financial Market Development: Evidence from Emerging Markets.
Download (137kB) | Preview
This paper studies the causal relationship between foreign direct investment (FDI) and financial market development (FMD) using panel data from emerging markets. Most studies of the relationship between FDI and FMD have focused on the role of FMD in the link between FDI and economic growth, with no deep understanding of direct causality between FDI and FMD, especially in emerging markets, where financial markets are in the development stage. We document bidirectional causality between FDI and stock market development indicators. For banking sector development indicators, the relationship is ambiguous and inconclusive. Care is therefore needed when analysing the relationship between FMD and FDI, as results may depend on whether the FMD variables used to evaluate causality are stock market or banking sector development indicators.
|Item Type:||MPRA Paper|
|Original Title:||Causality between FDI and Financial Market Development: Evidence from Emerging Markets|
|Keywords:||Foreign direct investment, FDI, financial market development, stock market development, banking sector development, causality|
|Subjects:||O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment; Long-Term Capital Movements
|Depositing User:||Fulbert TCHANA TCHANA|
|Date Deposited:||09. Jun 2011 03:19|
|Last Modified:||13. Feb 2013 10:12|
Adam, A. M. and G. Tweneboah, 2009, “Foreign Direct Investment and Stock market Development: Ghana’s Evidence”, International Research Journal of Finance and Economics, 26, 178-185.
Al Nasser, O. M. and G. Soydemir, 2010, “Domestic and International Determinants of Foreign Direct Investment in Latin America”, FMA Annual Meeting, New York, USA.
Alfaro, L., Chanda, A., Kalemli-Ozcan, S. and S. Sayek, 2004, “FDI and Economic Growth: The Role of Local Financial Markets”, Journal of International Economics, 64(1), 89-112.
Alfaro, L., Chanda, A., Kalemli-Ozcan, S. and S. Sayek, 2010, “Does Foreign Direct Investment Promote Growth? Exploring the Role of Financial Markets on Linkages”, Journal of Development Economics, 91(2), 242-256.
Allen, F., Carletti, E., Cull, R., Qian, J. and L. Senbet, 2010, “The African Financial Development Gap”, Working Paper, Wharton School, University of Pennsylvania.
Arellano, M., 2003, Panel Data Econometrics, Oxford University Press.
Arellano, M. and O. Bover, 1995, “Another Look at the Instrumental Variable Estimation of Error-Components Models”, Journal of Econometrics, 68(1), 29-51.
Asiedu, E., 2002, “On the Determinants of Foreign Direct Investment to Developing Countries: Is Africa Different?”, World Development, 30(1), 107–19.
Bekaert, G., Harvey, C. R. and C. Lundblad, 2005, “Does Financial Liberalization Spur Growth?”, Journal of Financial Economics, 77(1), 3-55.
Blundell, R. and S. Bond, 1998, “Initial Conditions and Moment Restrictions in Dynamic Panel Data Models”, Journal of Econometrics, 87(1), 115-143.
Carkovic, M. and R. Levine, 2005, “Does Foreign Direct Investment Accelerate Economic Growth?”, in Does Foreign Direct Investment Promote Development, Edited by Moran, T.
H., Graham, E. M., and M. Blomstrom, Institute for International Economics, Washington DC, 195-220.
Desai, M. A., Foley, C. F. and J. R. Hines Jr., 2006, “Capital Controls, Liberalizations, and Foreign Direct Investment”, The Review of Financial Studies, 19(4), 1433-1464.
Dutta, N. and S. Roy, 2011, “Foreign Direct Investment, Financial Development and Political Risks”, The Journal of Developing Areas, 44(2), 303-327.
Faeth, I., 2009, “Determinants of Foreign Direct Investment – A Tale of Nine Theoretical Models”, Journal of Economic Surveys, 23(1), 165–196.
Henry, P. B., 2000, “Do Stock Market Liberalizations Cause Investment Booms?”, Journal of Financial Economics, 58(1-2), 301-334.
Hermes, N. and R. Lensink, 2003, “Foreign Direct Investment, Financial Development and Economic Growth”, Journal of Development Studies, 40(1), 142-163.
Im, K.S., Pesaran, M.H. and Y. Shin, 2003, “Testing for Unit Roots in Heterogeneous Panels”, Journal of Econometrics, 115(1), 53-74.
Kaufmann, D., Kraay, A. and M. Mastruzzi, 2009, Governance Matters VIII: Aggregate and Individual Governance Indicators 1996-2008, World Bank Policy Research Working Paper #4978, Washington, DC.
Kholdy, S. and A. Sohrabian, 2005, “Financial Markets, FDI, and Economic Growth: Granger Causality Tests in Panel Data Model”, Working Paper, California State Polytechnic University.
Kholdy, S. and A. Sohrabian, 2008, “Foreign Direct Investment, Financial Markets and Political Corruption”, Journal of Economic Studies, 35(6), 486-500.
Levin, A., Lin, C.F., and C.S.J. Chu, 2002, “Unit Root Test in Panel Data: Asymptotic and Finite Sample Properties”, Journal of Econometrics, 108(1), 1-24.
Levine, R., N. Loayza, and T. Beck , 2000, “Financial Intermediation and Growth: Causality and Causes ” Journal of Monetary Economics, 46(1), 31-77.
Levine, R., and S. Zervos, 1998, “Stock Markets, Banks, and Economic Growth”, American Economic Review, 88(3), 537-558.
Rajan, R. J. and L. Zingales, 2003, Saving Capitalism from the Capitalists: Unleashing the Power of Financial Markets to Create Wealth and Spread Opportunity, Princeton University Press, Princeton, NJ