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Do financial and governmental institutions play a mediating role in the spillover effects of FDI?

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  • Nam, Hyun-Jung
  • Bang, Jeongseok
  • Ryu, Doojin

Abstract

We investigate the effects of foreign direct investment (FDI) on technological change in the Association of South East Asian Nations member countries. Our analysis underscores the pivotal roles that financial and governmental institutions play as mediators in the relationship between FDI and technological change. Our empirical results based on the 25 years panel dataset from 1996 to 2020 reveal that the rule of law, one of the sub-indicators of the Worldwide Governance Indicators, has a significant mediating effect in this relationship. Though financial institutions play a mediating role, FDI negatively affects financial institutions and positively affects technological change, meaning the suppression effect. To maximize FDI’s spillover effects, governments should facilitate the effective functioning of the rule of law and develop strategies to alleviate financing restrictions, which might hamper FDI.

Suggested Citation

  • Nam, Hyun-Jung & Bang, Jeongseok & Ryu, Doojin, 2023. "Do financial and governmental institutions play a mediating role in the spillover effects of FDI?," Journal of Multinational Financial Management, Elsevier, vol. 69(C).
    • Handle: RePEc:eee:mulfin:v:69:y:2023:i:c:s1042444x23000282
    DOI: 10.1016/j.mulfin.2023.100809
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    Cited by:

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    5. Nam, Hyun-Jung & Frijns, Bart & Ryu, Doojin, 2024. "Trade openness and income inequality: The moderating role of institutional quality," Global Finance Journal, Elsevier, vol. 60(C).
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    Keywords

    Financial institutions; Foreign direct investment; Governmental institutions; Spillover effect; Technological change;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • G2 - Financial Economics - - Financial Institutions and Services
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O35 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Social Innovation
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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