The relationship between financial market development and foreign direct investment in latin American countries

Massomeh Hajilee () and Omar M. Al Nasser
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Omar M. Al Nasser: University of Houston-Victoria, USA

Journal of Developing Areas, 2015, vol. 49, issue 2, 227-245

Abstract: The main purpose of this paper is to assess the impact of financial market development on Foreign Direct Investment (FDI) in Latin American countries. Financial market development and FDI are two important sources of efficient economic resource allocation in the region. We use banking sector and stock market indicators to capture financial market development. By giving greater consideration to the short-run and long-run effects of financial market development on FDI, this paper presents empirical results from a time series model of 14 Latin American countries. We find financial market development link is both short-run and long-run phenomena in majority of countries. Furthermore, our result of the causality test shows that link between FDI and banking sector development is uni-directional and the link between FDI and stock market development is bi-directional.

Keywords: foreign direct investment; financial development; bounds testing; granger-causality; Latin America (search for similar items in EconPapers)
JEL-codes: F21 G28 O16 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:jda:journl:vol.49:year:2015:issue2:pp:227-245

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