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FDI and financial development: evidence from eight post-communist countries

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  • Manuchehr Irandoust

Abstract

This paper empirically examines the effects that host countries’ financial development (FD) has on foreign direct investment (FDI). The departure from earlier studies of the role of FD in attracting FDI is in the multidimensional FD index. Thus, this paper investigates the causal relationship between FDI and FD in eight post-communist countries. The bootstrap panel Granger causality approach is utilized to detect the direction of causality. The findings show that there is only a unidirectional causality running from FD to FDI in six countries out of eight under review. The policy implication of the findings is that countries wishing to attract more FDI should implement measures to improve access to external finance and this should be accompanied by a well-functioning and adequately regulated financial system.

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  • Manuchehr Irandoust, 2021. "FDI and financial development: evidence from eight post-communist countries," Studies in Economics and Econometrics, Taylor & Francis Journals, vol. 45(2), pages 102-116, April.
    • Handle: RePEc:taf:rseexx:v:45:y:2021:i:2:p:102-116
    DOI: 10.1080/03796205.2021.1978859
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    Cited by:

    1. Kazeem Bello Ajide, 2024. "Does the presence of democratic traits enhance Africa’s appeal for foreign direct investment?," Economic Change and Restructuring, Springer, vol. 57(6), pages 1-43, December.
    2. Samira Ben Belgacem & Moheddine Younsi & Marwa Bechtini & Abad Alzuman & Rabeh Khalfaoui, 2024. "Do Financial Development, Institutional Quality and Natural Resources Matter the Outward FDI of G7 Countries? A Panel Gravity Model Approach," Sustainability, MDPI, vol. 16(6), pages 1-24, March.
    3. Korzeb, Zbigniew & Niedziółka, Paweł & Nistor, Simona, 2023. "Sovereign creditworthiness and bank foreign ownership. An empirical investigation of the European banking sector," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 89(C).
    4. Huang, Huafang & Cheng, Xianfu & Wei, Liangli & Liu, Dongping & Deng, Minmin, 2024. "Are natural resources a driving force for financial development or a curse for the economy? Policy insight from Next-11 countries," Resources Policy, Elsevier, vol. 88(C).
    5. Ofori-Sasu, Daniel & Adu-Darko, Eunice & Asamoah, Michael Effah & Abor, Joshua Yindenaba, 2023. "Oil rents, trade environment and financial development: An international evidence," Resources Policy, Elsevier, vol. 82(C).
    6. Kazeem Abimbola Sanusi & Zandri Dickason-Koekemoer, 2025. "Dynamics Between Foreign Portfolio Investment, Stock Price and Financial Development in South Africa: A SVAR Approach," Economies, MDPI, vol. 13(1), pages 1-16, January.

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