Does foreign direct investment deepen the financial system in Southeast Asian economies?

Mollah Aminul Islam, Haiyun Liu, Muhammad Asif Khan, Md Tariqul Islam and Md Reza Sultanuzzaman

Journal of Multinational Financial Management, 2021, vol. 61, issue C

Abstract: This study empirically examines the role of foreign direct investment (FDI) in triggering financial deepening (FD) in the Southeast Asian region. More specifically, it investigates the direct and indirect role of FDI in enhancing the level of FD. The findings of the robust feasible generalized least squares (FGLS) and panel-corrected standard errors (PCSE) estimators suggest that FDI acts as an essential stimulator to FD in the region – directly as well as indirectly through money supply. The results are robust under alternative specifications and institutional measures. The study recommends policymakers to carefully consider the channel of money supply that substantially influences FDI to stimulate the level of FD. In addition, it is important to understand the dynamic role of the institutional framework and other macroeconomic variables in this nexus.

Keywords: Foreign direct investment; Financial deepening; Southeast Asia; FGLS; PCSE (search for similar items in EconPapers)
JEL-codes: C23 E44 F21 F36 G15 P45 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:mulfin:v:61:y:2021:i:c:s1042444x21000062

DOI: 10.1016/j.mulfin.2021.100682

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