Do Financial Development, Institutional Quality and Natural Resources Matter the Outward FDI of G7 Countries? A Panel Gravity Model Approach

Samira Ben Belgacem, Moheddine Younsi, Marwa Bechtini, Abad Alzuman and Rabeh Khalfaoui ()
Additional contact information
Samira Ben Belgacem: Princess Nourah Bint Abdulrahman University
Moheddine Younsi: SU - Shaqra University, Saudi Arabia, Université de Sousse
Marwa Bechtini: SU - Shaqra University, Saudi Arabia, Université de Sfax - University of Sfax
Abad Alzuman: Princess Nourah Bint Abdulrahman University
Rabeh Khalfaoui: ICN Business School, CEREFIGE - Centre Européen de Recherche en Economie Financière et Gestion des Entreprises - UL - Université de Lorraine

Post-Print from HAL

Abstract: Given the global growth of foreign capital flows, foreign investments hold significant potential for achieving sustainable development. Thus, this paper aims to highlight the key factors of FDI. In particular, it analyzes the effects of financial development and natural resources on FDI and how institutional quality and institutional distance can moderate these effects. The study used the dynamic panel gravity framework with two-step system GMM estimators to assess whether the developed financial system, better institutions, and possessing natural resources influence the outward FDI of G7 countries to host countries over the period 2002–2021. The results show that a well-developed financial system and well-functioning institutions in host countries are important prerequisites for FDI inflows. We find that the relationship between financial development and FDI is positively and significantly moderated by both institutional quality and institutional distance. Contrarily, these factors negatively moderate the connection involving natural resources and FDI. The significant negative association between institutional indicators' interaction with natural resources indicates that natural resources play a key role in FDI, while joint policies for institutions and natural resources considerably decrease FDI inflows. Moreover, we discover that factors like GDP per capita, logistics infrastructure, and population could attract and handle more FDI. Based on the findings, the study recommends that host governments should focus on policies that strengthen the financial system, reduce institutional and legislative barriers, and enhance institutional quality and business environment to grant foreign investors access to all areas of their economies. Moreover, host governments should brand separate policies for institutions and natural resources to improve their economic advantages.

Keywords: Foreign direct investment; Financial development; Natural resources; Institutional quality; Institutional distance; Panel Gravity Model (search for similar items in EconPapers)
Date: 2024-03-07
References: Add references at CitEc
Citations:

Published in Sustainability, 2024, 16 (6), pp.2237. ⟨10.3390/su16062237⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04549196

DOI: 10.3390/su16062237

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().