Does foreign direct investments in financial services induce financial development? Lessons from emerging economies

We employ panel Vector Error Correction Models (VECM) and cointegration framework to identify the existence and direction of the causal association between foreign direct investment (FDI) in financial services and financial development for 26 emerging economies for the period 2003–2015. Our results...

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Bibliographic Details
Published in:International journal of finance and economics 2022-10, Vol.27 (4), p.4399-4411
Main Authors: P, Jithin, M, Suresh Babu
Format: Article
Language:English
Subjects:
Economic development
emerging economies
Emerging markets
FDI
financial development
Financial services
Foreign investment
services
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Summary:We employ panel Vector Error Correction Models (VECM) and cointegration framework to identify the existence and direction of the causal association between foreign direct investment (FDI) in financial services and financial development for 26 emerging economies for the period 2003–2015. Our results show that there exists a long‐run cointegrating relationship between financial development and FDI in financial services after incorporating the extent of heterogeneity among emerging economies. We find long run unidirectional causality from financial development to financial services FDI. Using fully modified OLS (FMOLS) estimation, we estimate the long run elasticities between financial services FDI and financial development. Our results show that financial development has a positive and significant impact on FDI in financial services, which implies that a country with well‐developed financial markets tend to attract larger amounts of FDI in financial services.
ISSN:1076-9307
1099-1158
DOI:10.1002/ijfe.2378