Financial System Development and Foreign Direct Investment: A Panel Data Study for BRIC Countries

Manpreet Kaur, Surendra S. Yadav and Vinayshil Gautam
Additional contact information
Manpreet Kaur: Manpreet Kaur (corresponding author) is currently working as Assistant Professor at Vivekananda Institute of Professional Studies and also research scholar at the Department of Management Studies, Indian Institute of Technology, Delhi, India. E-mail: manpreet3015@yahoo.com
Surendra S. Yadav: Surendra S. Yadav is currently Professor at and former Head of the Department of Management Studies, I.I.T. Delhi. E-mail: ssyadav@dms.iitd.ac.in
Vinayshil Gautam: Vinayshil Gautam is Emeritus Professor of Management Studies at IIT Delhi and the A. Al Sager Chair Professor of Management. E-mail: vgautam@dms.iitd.ac.in

Global Business Review, 2013, vol. 14, issue 4, 729-742

Abstract: Developed financial system is one of the important determinants of Foreign Direct Investment (FDI). The article analyzes the impact of financial system development on FDI with respect to BRIC countries for the period 1991 to 2010. Using the panel data analyses, fixed and random effect, our results conclude that FDI inflows to BRIC countries are influenced by banking sector and stock market variables, used as a proxy for financial development. FDI is positively influenced by size of banking sector and stock market capitalization. However, more domestic credit by banking sector negatively influences FDI inflows to these countries over the period of study. The study contributes to the existing literature as it analyzes the influence of financial sector development on China’s FDI too, not included in earlier cross-countries studies.

Keywords: FDI; BRICs; stock market capitalization; liquid liabilities; panel data (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:globus:v:14:y:2013:i:4:p:729-742

DOI: 10.1177/0972150913501607

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