The Relationship between Foreign Investment, Financial Development and Economic Growth

Öz

The aim of the study is to investigate the possible effects of foreign investments (foreign direct investment and foreign portfolio investments) and financial development on economic growth. For study, data from 133 countries between 1990 and 2017 were investigated using the system generalized moments method and multiple mediator analysis. In the study, it was determined that foreign direct investment (FDI), foreign portfolio investments (FPI) and financial development increase economic growth. In addition, while FDIs entering the country are found to increase economic growth indirectly by affecting financial markets and domestic investments, FPIs only support economic growth through financial markets. In addition to these results, another striking result is the existence of the threshold effect of the financial development level in the country on the effect of FDI and FPI on economic growth. In other words, after the financial development level in the country exceeds a certain level, the positive effect of foreign investment (FDI and FPI) on economic growth will disappear. Another important result is related to the level of financial development in the country. It was determined that financial development has a non-linear "inverse-U" effect on economic growth. Financial development has a positive effect on growth up to a certain level. After exceeding this level, the increase in financial development has a negative effect on growth.

Anahtar Kelimeler

• Foreign direct investment
• Foreign portfolio investment
• Financial development
• Economic growth
• System-GMM

YABANCI YATIRIM, FİNANSAL GELİŞME VE EKONOMİK BÜYÜME İLİŞKİSİ

Öz

Çalışmanın amacı, yabancı yatırımların (doğrudan yabancı yatırım ve yabancı portföy yatırımları) ve finansal gelişmenin ekonomik büyüme üzerindeki olası etkilerini araştırmaktır. Çalışmanın amacı doğrultusunda 133 ülkenin 1990-2017 dönemine ait verileri sistem genelleştirilmiş momentler yöntemi ve çoklu aracılık analizi ile araştırılmıştır. Çalışmada, doğrudan yabancı yatırım (DYY), yabancı portföy yatırımları (YPY) ve finansal gelişmenin ekonomik büyümeyi arttırdığı tespit edilmiştir. Ayrıca ülkeye giren DYY’ler, finansal piyasaları ve yerli yatırımları etkileyerek ekonomik büyümeyi dolaylı olarak da arttırdığı tespit edilirken, YPY’ler sadece finansal piyasalar aracılığı ile ekonomik büyümeyi desteklemektedir. Bu sonuçlara ek olarak çalışmada tespit edilen diğer çarpıcı bir sonuç ise DYY’nin ve YPY’nin ekonomik büyüme üzerindeki etkisinde, ülkedeki finansal gelişme seviyesinin eşik etkisinin varlığıdır. Yani ülkedeki finansal gelişme seviyesi belirli bir seviyeyi aştıktan sonra yabancı yatırımın (DYY ve YPY) ekonomik büyüme üzerindeki pozitif etkisi kaybolacaktır. Çalışmada tespit edilen önemli diğer bir sonuç ise ülkedeki finansal gelişme seviyesi ile ilgilidir. Finansal gelişmenin ekonomik büyüme üzerinde doğrusal olamayan “ters-U” şeklinde etkisi tespit edilmiştir. Finansal gelişme belli bir seviyeye kadar büyüme üzerinde olumlu etkiye sahiptir. Bu seviyeyi aştıktan sonra, finansal gelişmedeki artış büyüme üzerinde olumsuz etkisi vardır.

Anahtar Kelimeler

• Doğrudan yabancı yatırım
• Yabancı portföy yatırımları
• Finansal gelişme
• Ekonomik büyüme
• Sistem GMM

Kaynakça

1. Abu-Bader, S. & Abu-Qarn, A. S. (2008). Financial development and economic growth: The Egyptian experience. Journal of Policy Modeling, 30, 887-898.
2. Ahmad, F., Draz, M. U. & Yang, S. (2016). Foreign portfolio inflows and economic growth: evidence from ASEAN5. Actual Problems of Economics, 179(5), 57-59.
3. Aizenman, J., Jinjarak, Y. & Park, D. (2013). Capital flows and economic growth in the era of financial integration and crisis 1990–2010. Open Economic Review, 24, 371-396
4. Albulescu, C. T. (2015). Do foreign direct and portfolio investments affect long-term economic growth in Central and Eastern Europe?. Procedia Economics and Finance, 23, 507-512.
5. Alfaro, L. & Charlton, A. (2007). Growth and the quality of foreign direct investment: Is all FDI equal?. Discussion Paper No:830, Centre for Economic Performance.
6. Alfaro, L., Chanda, A., Kalemli-Ozcan, S. & Sayek, S. (2004). FDI and economic growth: the role of local financial markets. Journal of International Economics, 64, 89-112.
7. Alvarado, R., Iñiguez, M. & Ponce, P. (2017). Foreign direct investment and economic growth in Latin America. Economic Analysis and Policy, 56, 176-187.
8. Ang, J. B. (2009). Financial development and the FDI-growth nexus: the Malaysian experience. Applied Economics, 41, 1595-1601.

9. Arcand, J. L., Berkes, E. & Panizza, U. (2015). Too much finance?. Journal of Economic Growth, 20, 105-148.
10. Arellano, M. & Bond, S. (1991). Some test of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies, 58, 277-297.
11. Aslan, Ö. & Küçükaksoy, İ. (2006). Finansal gelişme ve ekonomik büyüme ilişkisi: Türkiye ekonomisi üzerine ekonometrik bir uygulama. Ekonometri ve İstatistik, 4, 12-28.
12. Baharumshah, A. Z. & Thanoon, M. A. (2006). Foreign capital flows and economic growth in East Asian countries. China Economic Review, 17, 70-83.
13. Baltagi, B. H. (2005). Econometric analysis of panel data. 3th ed., Chichester: John Wiley & Sons.
14. Batten, J. A. & Vo, X. V. (2009). An analysis of the relationship between foreign direct investment and economic growth. Applied Economics, 41, 1621-1641.
15. Beck, T., Levine, R. & Loayza, N. (2000). Finance and the sources of growth. Journal of Financial Economics, 58, 261-300.
16. Blomström, M. (2002). The economics of international investment incentives. Paris: OECD, International Investment Perspectives, 165-183.
17. Blundell, R. & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87, 115-143.
18. Bond, S. R. (2002). Dynamic panel data models: A guide to micro data methods and practice. Portuguese Economic Journal, 1, 141-162.
19. Bond, S., Hoeffler, A. & Temple, J. (2001). GMM estimation of empirical growth models. CEPR Discussion Paper No:3048.
20. Borensztein, E., De Gregorio, J., & Lee, J. (1998). How does foreign direct investment affect economic growth?. Journal of International Economics, 45, 115-135.
21. Calderon, C. & Liu, L. (2003). The direction of causality between financial development and economic growth. Journal of Development Economics, 72, 321-334.
22. Carkovic, M. & Levine, R. (2005). Does foreign direct investment accelerate economic growth. Does Foreign Direct Investment Promote Development, 195-220.
23. Cecchetti, S. G. & Kharroubi, E. (2012). Reassessing the impact of finance on growth. BIS Working Papers No:381.
24. Chee, Y. L. & Nair, M. (2010). The impact of FDI and financial sector development on economic growth: Empirical evidence from Asia and Oceania. International Journal of Economics and Finance, 2(2), 107-119.
25. Choong, C., Baharumshah, A. Z., Yusop, Z. & Habibullah, M. S. (2010). Private capital flows, stock market and economic growth in developed and developing countries: A comparative analysis. Japan and the World Economy, 22, 107-117.
26. De Mello, L. R. (1999). Foreign direct investment-led growth: Evidence from time series and panel data. Oxford Economic Papers, 51, 133-151.
27. Deidda, L. & Fattouh, B. (2002). Non linearity between finance and growth. Economics Letters, 74(3), 339-345.
28. Durham, J. B. (2003). Foreign portfolio investment, foreign bank lending, and economic growth. FRB International Finance Discussion Papers No:757.
29. Durham, J. B. (2004). Absorptive capacity and the effects of foreign direct investment and equity foreign portfolio investment on economic growth. European Economic Review, 48, 285-306.
30. Ericsson, J. & Irandoust, M. (2001). On the causality between foreign direct investment and output: A comparative study. The Internatıonal Trade Journal, 15(1), 1-26.
31. Errunza, V. (2001). Foreign portfolio equity investment, financial liberalization, and economic development. Review of International Economics, 9(4), 703-726.
32. Ferreira, M. A. & Laux, P. A. (2009). Portfolio flows, volatility and growth. Journal of International Money and Finance, 28, 271-292.
33. Hassan, M. K., Sanchez, B. & Yu, J. (2011). Financial development and economic growth: New evidence from panel data. The Quarterly Review of Economics and Finance, 51, 88–104.
34. Hayes, F. A. (2009). Beyond Baron and Kenny: Statistical mediation analysis in the new millennium. Communication Monographs, 76(4), 408-420.
35. Hayes, F. A. (2013). Introduction to mediation, moderation, and conditional process analysis: A regression-based approach. New York (2013): The Guilford Press
36. Hermes, N. & Lensink, R. (2003). Foreign direct investment, financial development and economic growth. The Journal of Development Studies, 38, 142-163.
37. Herzer, D., Klasen, S. & Nowak-Lehmann, D. F. (2008). In search of FDI-led growth in developing countries: The way forward. Economic Modelling, 25(5), 793-810.
38. Huang, H. & Lin, S. (2009). Non-Linear finance-growth nexus. Economics of Transition, 17(3), 439-466.
39. Iamsiraroj, S. & Ulubaşoğlu M. A. (2015). Foreign direct investment and economic growth: A real relationship or wishful thinking?. Economic Modelling, 51, 200-213.
40. Iamsiraroj, S. (2016). The foreign direct investment- economic growth nexus. International Review of Economics and Finance, 42, 116-133.
41. İbrahım, O. A. & Hassan, H. M. (2013). Determinants of foreign direct investment in Sudan: An econometric perspective. The Journal of North African Studies, 18(1), 1-15.
42. Jalil, A. & Feridun, M. (2011). Impact of financial development on economic growth: Empirical evidence from Pakistan. Journal of the Asia Pacific Economy, 16(1), 71-80.
43. Jalilian, H. & Kirkpatrick, C. (2005). Does financial development contribute to poverty reduction?. Journal of Development Studies, 41(4), 636-656.
44. Johnson, A. (2006). The effects of FDI inflows on host country economic growth. CESIS Working Paper Series, Paper No:58.
45. Kim, D. & Lin, S. (2013). Interrelationships among banks, stock markets and economic growth: An empirical investigation. Applied Economics, 45(31), 4385-4394.
46. King, G. R. & Levine, R. (1993). Finance and growth: Schumpert might be right. The Quarterly Journal of Economics, 108(3), 717-737.
47. Klein, M. & Olivei, G. (2008). Capital account liberalization, financial depth, and economic growth. Journal of International Money and Finance, 27(6), 861-875.
48. Law, S. H. & Singh, N. (2014). Does too much finance harm economic growth?. Journal of Banking & Finance, 41, 36-44.
49. Levine, R. & Carkovic, M. (2002). Finance and growth: new evidence and policy analyses for Chile. Working Papers Central Bank of Chile, 6,1-43.
50. Levine, R. & Zervos, S. (1998). Stock markets, banks, and economic growth. The American Economic Review, 88(3), 537-558.
51. Levine, R. (1997). Financial development and economic growth: Views and agenda. Journal of Economic Literature, 35(2), 688-726.
52. Levine, R. (2003). More on finance and growth: More finance, more growth?. Federal Reserve Bank of St. Louis Review, 85, 31-46.
53. Levine, R. (2005). Finance and growth: theory and evidence. In handbook of economic growth, ed. Aghion P. & Durlauf S. Amsterdam: Elsevier North-Holland.
54. Lind, J. T. & Mehlum, H. (2010). With or without u? The appropriate test for a U‐shaped relationship. Oxford Bulletin Of Economics And Statistics, 72(1), 109-118.
55. Makki, S. S. & Somwaru, A. (2004). Impact of foreign direct investment and trade on economic growth: Evidence from developing countries, Amer. J. Agr. Econ, 83(3), 795-801.
56. Mallick, S. & Moore, T. (2008). Foreign capital in a growth model. Review of Development Economics, 12, 143-159.
57. Mody, A. & Murshid, A. P. (2005). Growing up with capital flows. Journal of International Economics, 65, 249-266.
58. Omri, A. & Kahouli, B. (2014). Causal relationships between energy consumption, foreign direct investment and economic growth: Fresh evidence from dynamic simultaneous-equations models. Energy Policy, 67, 913–922.
59. Pal, P. (2011). Foreign portfolio investment, stock market and economic development: A case study of India. Capital Without Borders: Challenges to Development, 1, 121.
60. Preacher, J. K. & Hayes, F. A. (2008). Asymptotic and resampling strategies for assessing and comparing indirect effects in multiple mediator models. Behavior Research Methods, 40(3), 879-891.
61. Reisen, H. & Soto, M. (2001). Which types of capital inflows foster developing-country growth?. International Finance, 4(1), 1-14.
62. Rioja, F. & Valev, N. (2004). Does one size fit all?: A reexamination of the finance and growth relationship. Journal of Development Economics, 74, 429-477.
63. Rioja, F. & Valev, N. (2004a). Finance and the sources of growth at various stages of economic development. Economic Inquiry, 42(1), 127-140.
64. Rousseau, P. L. & Wachtel, P. (2011). What is happening to the impact of financial deepening on economic growth?. Economic Inquiry, 1-23.
65. Sahay, R., Martin C., Papa N., Adolfo B., Ran B., Diana A., Yuan G., Annette K., Lam N., Christian S., Katsiaryna S., & Seyed R. Y. (2015). Rethinking financial deepening: Stability and growth in emerging markets. IMF Staff Discussion Note 15/08. Washington: International Monetary Fund (May), 17(33),1-41.
66. Sghaier, I. M. & Abida, Z. (2013). Foreign direct investment, financial development and economic growth: Empirical evidence from North African Countries. Journal of International and Global Economic Studies, 6(1), 1-13.
67. Shen, C. & Lee, C. (2006). Same financial development yet different economic growth: Why?. Journal of Money, Credit and Banking, 38(7), 1907-1944.
68. Soto, M. (2000). Capital flows and growth in developing countries: Recent empirical evidence. , Technical Paper No:160, OECD Development Center.
69. Tatoğlu, Y. F. (2018). İleri panel veri analizi. 3. Baskı, İstanbul: Beta Basım Yayım Dağıtım A.Ş.
70. Waqas, Y., Hasmi, H. S. & Nazir, I. M. (2015). Macroeconomic factors and foreign portfolio investment volatility: A case of South Asian Countries. Future Business Journal, 1(1-2), 65-74.
71. Yao, S. (2006). On economic growth, FDI and exports in China. Applied Economics, 38, 339-351.
72. Zhang, K. H. (2001). Does foreign direct investment promote economic growth? Evidence from East Asia and Latin America. Contemporary Economic Policy, 19(2), 175-185.