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To browse Academia. This article aims to explore the relationship between foreign direct investments and the financial development in both, developed and developing countries. The relevance of financial development FD on foreign direct investments FDI is explored in three panels.

The first overall panel contains 93 economies; the second contains 32 developed economies, while the third panel contains 61 developing economies over the period A Granger causality test that implements a vector autoregressive VAR framework within the panel setting is employed. Besides this, panel regression model is estimated. In order to test the sensitivity of the results and avoid robust errors, we employ a panel ARDL model.

The findings of ARDL model indicate that there is a long-run relationship between FD and FDI for both developed and developing countries as well as for the overall sample. A short-run relationship is reported for the overall sample of countries as well as for developed countries. Granger causality test indicates a bidirectional relationship between financial development and foreign direct investments in overall sample as well as in developing countries.

A unidirectional relationship running from financial development to foreign direct investments is reported for developed countries. This study investigates the effects of financial development in enabling foreign direct investment to promote economic growth. A sample of 66 developing countries is examined over the period of to with static panel estimation: pooled ordinary least square POLS , fixed effect FE and random effect RE.