Financial Development and Foreign Direct Investment—The Moderating Role of Quality Institutions

Mollah Aminul Islam, Muhammad Asif Khan, József Popp, Wlodzimierz Sroka and Judit Oláh
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Mollah Aminul Islam: School of Economics, Huazhong University of Science and Technology, Luoyu Road 1037, Wuhan 430074, Hubei, China
Muhammad Asif Khan: Department of Commerce, Faculty of Management Sciences, University of Kotli, Azad Jammu and Kashmir, Kotli 11100, Pakistan
József Popp: Faculty of Economics and Social Sciences, Szent István University, 2100 Gödölő, Hungary
Wlodzimierz Sroka: Management Department, WSB University, Zygmunta Cieplaka 1c, 41-300 Dąbrowa Gornicza, Poland
Judit Oláh: TRADE Research Entity, Faculty of Economic and Management Sciences, North–West University, Vanderbijlpark 1900, South Africa

Sustainability, 2020, vol. 12, issue 9, 1-22

Abstract: Considering the importance of foreign direct investment (FDI) inflows for the sustainable economic advancement of a host country, this paper investigates the financial development and FDI nexus, using institutional quality as a moderator. The sample consists of 79 Belt and Road Initiative (BRI) partner countries, as these countries are entering a new age of integration, foreign trade, and mutual development. The empirical findings of conventional and robust estimators show that the financial development of BRI host countries significantly attracts FDI, while the institutional quality plays a significant moderating role in this relation. The in-depth analysis offers the insight that financial markets are less attractive to FDI relative to financial institutions. Thus, policymakers are advised to uphold sound financial institutions to make the country more attractive to overseas investors, while concentration on financial markets may multiply the benefits of FDI. The results are robust to alternative proxies of the key variables and alternative methodologies.

Keywords: financial development; belt and road initiative; generalized methods of moments; FDI; institutional quality (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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