Impact Of Financial Development On Investment: Evidence From Asian Nations

DOI

10.2991/978-94-6463-694-9_29How to use a DOI?

Keywords

financial development; foreign direct investment; domestic investment; regression models

Abstract

Research on the relationship between financial development and investment is limited. In fact, it is difficult to measure financial development because it is a broad concept with many aspects. The evidence on the impact of financial development on investment is controversial, and there is no clear consensus on this issue. This study explores the complex relationship between financial development, foreign direct investment (FDI) and domestic investment in Asian countries from 2000 to 2020. Panel regression results by STATA 14 implementation shows financial market depth, financial institution efficiency and financial market accessibility. Have all contributed to financial development. Trade openness also has an impact on investment and commercialization policies of countries, contributing to attracting foreign investment capital. Savings and investment always have a close relationship with each other in a positive direction regardless of economic conditions. It shows that policymakers can build the policies that are more likely to achieve desired economic outcomes through investment and financing channels, while helping the Government implement policies that promote regional and global trade and economic growth strategies through improving aspects of the financial system.

Research purpose:

This study critically explores the complex relationship between financial development, foreign direct investment (FDI) and domestic investment in Asian nations from 2000 to 2020.

Research motivation:

Financial development and investment are vital components of economic growth, particularly in Asia from 2000 to 2020.

Empirical evidence highlights the profound impact of financial development on investment decisions, facilitating access to external finance and streamlining transactions. However, the correlation between financial development and investment isn't always straightforward.

Research design, approach, and method:

The dataset was constructed from reliable sources such as the World Bank and the International Monetary Fund (IMF). The research group aggregated the raw data related to financial development and investment in forty-eight Asian countries during the period 2000 - 2020 based on theoretical models. Then the research group selected and retained appropriate data while discarding observations with missing information. The research team presents the hypothesis that the intercept term β0 remains constant over time, and the slope coefficients are fixed both across space and time. This hypothesis is applied to three common models in panel data analysis: Pooled Ordinary Least Squares (Pooled OLS), Fixed Effect Model (FEM), and Random Effect Model (REM). Regression with panel data was implemented in this study.

Main findings:

Panel regression results by STATA 14 implementation shows financial market depth, financial institution efficiency and financial market accessibility. Have all contributed to financial development. Trade openness also has an impact on investment and commercialization policies of countries, contributing to attracting foreign investment capital. Savings and investment always have a close relationship with each other in a positive direction regardless of economic conditions.

Practical/managerial implications:

Policymakers can design policies that are more likely to achieve desired economic outcomes through investment and financing channels, while helping the Government implement policies that promote regional and global trade and economic growth strategies through improving aspects of the financial system.

Copyright

© 2025 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Dang Thi My Dung
AU  - Nguyen Vu Hoang Oanh
AU  - Pham Ngoc Minh Tri
AU  - Ly Lam Tam Nhi
AU  - Tran Phuong Thao
AU  - Nguyen Duc Thien Tri
PY  - 2025
DA  - 2025/04/30
TI  - Impact Of Financial Development On Investment: Evidence From Asian Nations
BT  - Proceedings of the International Conference on Emerging Challenges: Sustainable Strategies in the Data-driven Economy (ICECH 2024)
PB  - Atlantis Press
SP  - 419
EP  - 433
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6463-694-9_29
DO  - 10.2991/978-94-6463-694-9_29
ID  - Dung2025
ER  -