Foreign direct investment, financial development and economic growth

Niels Hermes () and Robert Lensink
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Robert Lensink: Groningen University

No 00E27, Research Report from University of Groningen, Research Institute SOM (Systems, Organisations and Management)

Abstract: FDI may help to raise economic growth in recipient countries. Yet, the contribution FDI can make may strongly depend on the circumstances in the recipient countries. This paper argues that the development of the financial system of the recipient country is an important precondition for FDI to have a positive impact on economic growth. A more developed financial system positively contributes to the process of technological diffusion associated with FDI. The paper empirically investigates the role the development of the financial system plays in enhancing the positive relationship between FDI and economic growth. The empirical investigation presented in the paper strongly suggests that this is the case. Of the 67 countries in data set, 37 have a sufficiently developed financial system in order to let FDI contribute positively to economic growth. Most of these countries are in Latin America and Asia.

Date: 2000
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Citations: View citations in EconPapers (12)

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Journal Article: Foreign direct investment, financial development and economic growth (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:gro:rugsom:00e27

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