Financial Development and FDI Nexus- Evidence from One Belt One Road Economies

Abstract

Financial development has recently been captured the attention of researchers as in important element of economic prosperity. As foreign direct investment can have an important role in the economic achievements, this study investigates the role of financial development in attracting FDIs. Unlike earlier studies, it considers the most comprehensive proxy of financial development which overcomes the shortcomings due to ignorance of many economic components by earlier researchers. In this connection, this study uses panel of 39 countries from One Belt One Road (OBOR) economies. The empirical findings provide evidence in favor of financial sector reforms so as to benefit from foreign investment. The results are robust to the alternative measures of financial deepening under instrumental variable estimation. Therefore, the research specifically suggests countries to concentrate on developing their financial systems. Proper policy formulation can be done to reconstruct the weaker systems and to ensure wider and safer public access to the financial systems.