The effects of financial development on foreign direct investment

Abstract

, and two anonymous referees for helpful comments and suggestions. The authors gratefully acknowledge financial support from the Scottish Institute for Research in Economics (SIRE). The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Role of Domestic Financial Reforms and Internationalization of Non-Financial Transnational Firms: Evidence from the Chinese Market

“…Lenzo et al [13] identify that for firms, the key thing is to improve their sustainability performance and for this, they need supported financial settings, where they can have access to finance and they can make investments easily, so they can increase their resources and enhance their global and domestic market shares. Desbordes and Wei [14] highlight the importance of financial development in the shape of positive effect on expansion and greenfield of a financial system which stimulates the significant rise in foreign direct investment. In the 1990s, the implementation of financial liberalization reforms in many countries, eliminating the former policy limitations regarding the credit provision and foreign currency regulation enabled firms to make the overseas investment.…”

“…Hence, allowing domestic firms to list internationally enables them to have access to international resources. As Desbordes and Wei [14], Pelzman [22], and Rugman and Li [23] explain, Chinese firms-regardless of successful internal reforms-have failed to induce innovations in production, such as switching from cheap, labor-based production to an innovation and technology based production system, and prefer merger-acquisitions as a means of acquiring the required R&D. Therefore, this study also presumes that even if they are part of a successful internationalization process, some Chinese firms will fail to sustain their growth or grow further in the future. Figure 1 shows the outward investment trends of China and other major economies over time.…”

Financial market development in host and source countries and their effects on bilateral foreign direct investment

“…24 Note that we had to drop HC difference because otherwise the estimator did not converge. 25 Desbordes and Wei (2017), both variables are lagged by one year and enter in logged form. As we have argued above, we submit our comprehensive and novel measure of FMD as an improvement over these traditional measures, which only capture aspects of FMD, but it is worth testing whether our major finding of a substitutive conditioning effect in developing host countries holds with these previously employed measures as well.…”

The Sources of International Investment Income in Emerging Market Economies

“…As one of the rationales for the latter linkage they point out that multinational firms are likely to finance their activities in the local markets. Similarly, Desbordes and Wei (2017) report that financial development in both the source and destination economies promotes FDI.…”