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Article

Financial Development and Foreign Direct Investment—The Moderating Role of Quality Institutions

by 1,2, 3,*, 4,5, 6,7 and 5,8
1
School of Economics, Huazhong University of Science and Technology, Luoyu Road 1037, Wuhan 430074, Hubei, China
2
Department of Accounting & Information Systems, Jatiya Kabi Kazi Nazrul Islam University, Namapara 2220, Bangladesh
3
Department of Commerce, Faculty of Management Sciences, University of Kotli, Azad Jammu and Kashmir, Kotli 11100, Pakistan
4
Faculty of Economics and Social Sciences, Szent István University, 2100 Gödölő, Hungary
5
TRADE Research Entity, Faculty of Economic and Management Sciences, North–West University, Vanderbijlpark 1900, South Africa
6
Management Department, WSB University, Zygmunta Cieplaka 1c, 41-300 Dąbrowa Gornicza, Poland
7
North–West University, Hoffman Street, Potchefstroom 2351, South Africa
8
Faculty of Economics and Business, Institute of Applied Informatics and Logistics, University of Debrecen, 4032 Debrecen, Hungary
*
Author to whom correspondence should be addressed.
Sustainability 2020, 12(9), 3556; https://doi.org/10.3390/su12093556
Received: 4 March 2020 / Revised: 3 April 2020 / Accepted: 13 April 2020 / Published: 27 April 2020
Considering the importance of foreign direct investment (FDI) inflows for the sustainable economic advancement of a host country, this paper investigates the financial development and FDI nexus, using institutional quality as a moderator. The sample consists of 79 Belt and Road Initiative (BRI) partner countries, as these countries are entering a new age of integration, foreign trade, and mutual development. The empirical findings of conventional and robust estimators show that the financial development of BRI host countries significantly attracts FDI, while the institutional quality plays a significant moderating role in this relation. The in-depth analysis offers the insight that financial markets are less attractive to FDI relative to financial institutions. Thus, policymakers are advised to uphold sound financial institutions to make the country more attractive to overseas investors, while concentration on financial markets may multiply the benefits of FDI. The results are robust to alternative proxies of the key variables and alternative methodologies. View Full-Text
Keywords: financial development; belt and road initiative; generalized methods of moments; FDI; institutional quality financial development; belt and road initiative; generalized methods of moments; FDI; institutional quality
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MDPI and ACS Style

Islam, M.A.; Khan, M.A.; Popp, J.; Sroka, W.; Oláh, J. Financial Development and Foreign Direct Investment—The Moderating Role of Quality Institutions. Sustainability 2020, 12, 3556. https://doi.org/10.3390/su12093556

AMA Style

Islam MA, Khan MA, Popp J, Sroka W, Oláh J. Financial Development and Foreign Direct Investment—The Moderating Role of Quality Institutions. Sustainability. 2020; 12(9):3556. https://doi.org/10.3390/su12093556

Chicago/Turabian Style

Islam, Mollah A., Muhammad A. Khan, József Popp, Wlodzimierz Sroka, and Judit Oláh. 2020. "Financial Development and Foreign Direct Investment—The Moderating Role of Quality Institutions" Sustainability 12, no. 9: 3556. https://doi.org/10.3390/su12093556

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