Financial development and foreign direct investment nexus: A systematic review of literature

Abstract

In this study, we review the literature to find how financial development attracts foreign direct investments for a sustainable real sector development of a country. The area is least focused on literature. Thus, we do not limit our search and review to any time or database, or journal category. We find the theoretical logic and empirical evidence so far available in the literature. Our review finds that the development of a country's financial sector is one of the most important attractors of FDIs. Theoretically, financial sector development works as a symbol of trust and goodness to the new potential investors and a good resource allocation channel for the existing investors. However, very few researchers found that FDIs are more prone to countries with a low developed financial system which may happen due to the presence of risk-taker foreign investors and risk-averse domestic entrepreneurs. © 2021 by the authors. Licensee SSBFNET, Istanbul, Turkey. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (http://creativecommons.org/licenses/by/4.0/).