Does Financial Depth Promote Foreign Direct Investment? New Evidence from the Panel Threshold Regression

Doan, Thu-Trang Thi; Bui, Toan Ngoc

:: International Transaction Journal of Engineering, Management, & Applied Sciences & Technologies

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ISSN 2228-9860
eISSN 1906-9642
CODEN: ITJEA8

FEATURE PEER-REVIEWED ARTICLE

Vol.12(7) (2021)

Does Financial Depth Promote Foreign Direct Investment? New Evidence from the Panel Threshold Regression

Thu-Trang Thi Doan, Toan Ngoc Bui (Faculty of Finance and Banking, Industrial University of Ho Chi Minh City (IUH), VIETNAM).

Disciplinary: Economics, Econometrics and Finance.
➤ FullText

doi: 10.14456/ITJEMAST.2021.142

Keywords: Asian investment; Domestic credit; EMDEs; financial depth; FDI; FD; Economic growth (EG); Foreign direct investment; Inflation; Nonlinear; Nonlinear effect Financial economics.
Abstract

In this study, we consider the impact of financial depth (FD) on foreign direct investment (FDI) in emerging markets and developing economies (EMDEs). The data were obtained in 8 Asian EMDEs including Vietnam, Thailand, Philippines, Malaysia, Sri Lanka, India, Indonesia, and China. In the analysis, we adopted the panel threshold regression which is superior to other traditional models, especially in analyzing the nonlinear relationship between variables. Therefore, we expected to reveal more unprecedented findings. The results report that FD has a nonlinear effect on FDI with the threshold value γ = 82.9%. Specifically, if FD reaches the threshold γ, FD is positively associated with FDI. This correlation turns to be negative but at a lower level beyond the threshold value. In addition, we reveal the positive impact of economic growth (EG) and inflation (INF) on FDI. This confirms the importance of FD and macroeconomic factors in attracting FDI into EMDEs.

Paper ID: 12A7P

Cite this article:

Doan, T.-T. T., and Bui, T. N. (2021). Does Financial Depth Promote Foreign Direct Investment? New Evidence from the Panel Threshold Regression. International Transaction Journal of Engineering, Management, & Applied Sciences & Technologies, 12(7), 12A7P, 1-7. http://doi.org/10.14456/ITJEMAST.2021.142

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