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The relationship between financial market development and foreign direct investment in latin American countries

Author

Listed:
  • Massomeh Hajilee
  • Omar M. Al Nasser

    (University of Houston-Victoria, USA)

Abstract

The main purpose of this paper is to assess the impact of financial market development on Foreign Direct Investment (FDI) in Latin American countries. Financial market development and FDI are two important sources of efficient economic resource allocation in the region. We use banking sector and stock market indicators to capture financial market development. By giving greater consideration to the short-run and long-run effects of financial market development on FDI, this paper presents empirical results from a time series model of 14 Latin American countries. We find financial market development link is both short-run and long-run phenomena in majority of countries. Furthermore, our result of the causality test shows that link between FDI and banking sector development is uni-directional and the link between FDI and stock market development is bi-directional.

Suggested Citation

  • Massomeh Hajilee & Omar M. Al Nasser, 2015. "The relationship between financial market development and foreign direct investment in latin American countries," Journal of Developing Areas, Tennessee State University, College of Business, vol. 49(2), pages 227-245, April-Jun.
    • Handle: RePEc:jda:journl:vol.49:year:2015:issue2:pp:227-245
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    Citations

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    Cited by:

    1. Liu, Haiyun & Islam, Mollah Aminul & Khan, Muhammad Asif & Hossain, Md Ismail & Pervaiz, Khansa, 2020. "Does financial deepening attract foreign direct investment? Fresh evidence from panel threshold analysis," Research in International Business and Finance, Elsevier, vol. 53(C).
    2. Özcan Karahan & Musa Bayır, 2022. "The effects of monetary policies on foreign direct investment inflows in emerging economies: some policy implications for post-COVID-19," Future Business Journal, Springer, vol. 8(1), pages 1-14, December.
    3. Tran, Viet Nhu Anh & Huynh, Cong Minh, 2022. "The impact of foreign direct investment on financial development in Asian countries," MPRA Paper 114311, University Library of Munich, Germany.
    4. Osamede Success Abusomwan & John Norense Izevbigie, 2024. "Linking foreign direct investment to financial deepening: Evidence from sub‐Saharan Africa," African Development Review, African Development Bank, vol. 36(1), pages 1-14, March.
    5. Mollah Aminul Islam & Muhammad Asif Khan & József Popp & Wlodzimierz Sroka & Judit Oláh, 2020. "Financial Development and Foreign Direct Investment—The Moderating Role of Quality Institutions," Sustainability, MDPI, vol. 12(9), pages 1-22, April.
    6. Chletsos, Michael & Sintos, Andreas, 2024. "Political stability and financial development: An empirical investigation," The Quarterly Review of Economics and Finance, Elsevier, vol. 94(C), pages 252-266.
    7. Hossein Niavand, & Farzaneh Haghighat Nia, 2017. "Globalization: The Relationship between Iran and India stock market," EcoForum, "Stefan cel Mare" University of Suceava, Romania, Faculty of Economics and Public Administration - Economy, Business Administration and Tourism Department., vol. 6(3), pages 1-31, august.

    More about this item

    Keywords

    foreign direct investment; financial development; bounds testing; granger-causality; Latin America;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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