Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/206611
Authors: 
Khan, Hameed
Khan, Umair
Year of Publication: 
2019
Series/Report no.: 
Economics Discussion Papers No. 2019-54
Abstract: 
In this paper, the authors revisit the nexus of financial development and FDI inflows in Chinese perspective, incorporating the vital role of institutional quality and other important variables in this paradigm. Using ARDL bound testing and VECM procedures, they establish causality by exploiting variations in financial development and FDI. To unmask the shortcomings in the previous literature, the authors use a composite index of financial development, recently developed by the IMF, since it provides a more fine-grained analysis. The results show that there is a long-run relationship between FDI and financial development. Bidirectional causality is confirmed by using VECM. The inclusion of control variables, e.g., institutional quality, transport infrastructure, per capita GDP, trade openness, domestic investment, natural resources rent, is robust in the analysis. The positive role of financial development in FDI inflows is of utmost importance for policymakers and the Chinese government. Several policy implications are given in this study.
Subjects: 
financial development
FDI
ARDL
liberalization
capital market
money market
JEL: 
C22
F23
F38
G21
G32
O17
Creative Commons License: 
https://creativecommons.org/licenses/by/4.0/
Document Type: 
Working Paper

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