Impact Of Financial Development On Investment: Evidence From Asian Nations

Dang Thi My Dung (), Nguyen Vu Hoang Oanh, Pham Ngoc Minh Tri, Ly Lam Tam Nhi, Tran Phuong Thao and Nguyen Duc Thien Tri
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Dang Thi My Dung: Foreign Trade University, Faculty of Foreign Languages
Nguyen Vu Hoang Oanh: Foreign Trade University, Faculty of Business Administration and Finance - Accounting
Pham Ngoc Minh Tri: Foreign Trade University, Faculty of Business Administration and Finance - Accounting
Ly Lam Tam Nhi: Foreign Trade University, Faculty of Business Administration and Finance - Accounting
Tran Phuong Thao: Foreign Trade University, Faculty of Business Administration and Finance - Accounting
Nguyen Duc Thien Tri: Foreign Trade University, Faculty of Business Administration and Finance - Accounting

A chapter in Proceedings of the International Conference on Emerging Challenges: Sustainable Strategies in the Data-Driven Economy (ICECH 2024), 2025, pp 419-433 from Springer

Abstract: Abstract Research on the relationship between financial development and investment is limited. In fact, it is difficult to measure financial development because it is a broad concept with many aspects. The evidence on the impact of financial development on investment is controversial, and there is no clear consensus on this issue. This study explores the complex relationship between financial development, foreign direct investment (FDI) and domestic investment in Asian countries from 2000 to 2020. Panel regression results by STATA 14 implementation shows financial market depth, financial institution efficiency and financial market accessibility. Have all contributed to financial development. Trade openness also has an impact on investment and commercialization policies of countries, contributing to attracting foreign investment capital. Savings and investment always have a close relationship with each other in a positive direction regardless of economic conditions. It shows that policymakers can build the policies that are more likely to achieve desired economic outcomes through investment and financing channels, while helping the Government implement policies that promote regional and global trade and economic growth strategies through improving aspects of the financial system. Research purpose: This study critically explores the complex relationship between financial development, foreign direct investment (FDI) and domestic investment in Asian nations from 2000 to 2020. Research motivation: Financial development and investment are vital components of economic growth, particularly in Asia from 2000 to 2020. Empirical evidence highlights the profound impact of financial development on investment decisions, facilitating access to external finance and streamlining transactions. However, the correlation between financial development and investment isn't always straightforward. Research design, approach, and method: The dataset was constructed from reliable sources such as the World Bank and the International Monetary Fund (IMF). The research group aggregated the raw data related to financial development and investment in forty-eight Asian countries during the period 2000 - 2020 based on theoretical models. Then the research group selected and retained appropriate data while discarding observations with missing information. The research team presents the hypothesis that the intercept term β0 remains constant over time, and the slope coefficients are fixed both across space and time. This hypothesis is applied to three common models in panel data analysis: Pooled Ordinary Least Squares (Pooled OLS), Fixed Effect Model (FEM), and Random Effect Model (REM). Regression with panel data was implemented in this study. Main findings: Panel regression results by STATA 14 implementation shows financial market depth, financial institution efficiency and financial market accessibility. Have all contributed to financial development. Trade openness also has an impact on investment and commercialization policies of countries, contributing to attracting foreign investment capital. Savings and investment always have a close relationship with each other in a positive direction regardless of economic conditions. Practical/managerial implications: Policymakers can design policies that are more likely to achieve desired economic outcomes through investment and financing channels, while helping the Government implement policies that promote regional and global trade and economic growth strategies through improving aspects of the financial system.

Keywords: financial development; foreign direct investment; domestic investment; regression models (search for similar items in EconPapers)
Date: 2025
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DOI: 10.2991/978-94-6463-694-9_29

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