EFFECT OF FOREIGN DIRECT INVESTMENT ON FINANCIAL DEVELOPMENT: THE CASE OF OECD
Öz
The effect of foreign direct investment (FDI) on financial development has received relatively little attention in the existing literature. Furthermore, the current studies examining this relationship have yet to reach a consensus. To address this gap and contribute to the literature, this study employs the fixed effects model and the system generalized method of moments (GMM) to explore the impact of FDI on financial development within OECD countries from 1990-2020. In light of the findings, the study indicates that FDI inflows are linked to an improved financial system in the host country. In addition, this study explores the impact of FDI on the two key components of the financial development index, specifically the financial institutions index and the financial markets index. The regression analysis reveals that the beneficial influence of FDI on the financial markets index is roughly twice that on the financial institutions index. To deal with potential issues of endogeneity that may arise from the possible bidirectional relationship between FDI and financial development, the study employs the system GMM model, which supports the results obtained from the fixed effect model. However, the effect of FDI on the financial institutions index and financial markets index is found to be comparable in contrast to previous research.
Anahtar Kelimeler
Foreign direct investment, financial development, system GMM
Kaynakça
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