FDI, financial development, and economic growth: International evidence
Chien-Chiang Lee () and
Chun-Ping Chang ()
Journal of Applied Economics, 2009, vol. 12, 249-271
Previous studies have recognized that the benefits from foreign direct investment (FDI) to recipient countries can only be realized when those countries have reached a certain level of financial development. However, the dynamic interrelationships among FDI, financial development, and real output, including the long-run equilibrium as well as causality, have not been analyzed. This paper overcomes this major shortcoming by applying recent advances in panel cointegration and panel error correction models for a set of 37 countries using annual data for the period 1970-2002. For the first time, we explore the directions of causality among FDI, financial development, and economic growth and obtain solid, convincing evidence of a fairly strong long-run relationship. Furthermore, the financial development indicators have a larger effect on economic growth than does FDI. From the panel causality tests, while the evidence of a short-run relationship is weak, that of a long-run relationship among the variables is unequivocal. Overall, the findings underscore the potential gains associated with FDI when coupled with financial development in an increasingly global economy.
Keywords: foreign direct investment; financial development; economic growth; panel cointegration; panel causality : (search for similar items in EconPapers)
JEL-codes: F23 O16 O40 (search for similar items in EconPapers)
References: Add references at CitEc
Citations: View citations in EconPapers (37) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:cem:jaecon:v:12:y:2009:n:2:p:249-271
Access Statistics for this article
Journal of Applied Economics is currently edited by Germán Coloma and Mariana Conte Grand and Jorge M. Streb
More articles in Journal of Applied Economics from Universidad del CEMA Contact information at EDIRC.
Bibliographic data for series maintained by Valeria Dowding ().