Interaction of Financial Development and Foreign Direct Investment on Economic Growth (Case study of 10 Asian Developing Countries with emphasis on Iran)

In this study the effect of Foreign Direct Investment (FDI), Financial Development and interaction between FDI and financial development on economic growth of 10 developing countries including Iran is investigated during 1980–2011. Panel data method is used to estimate the models. The model is applied to investigate the effect of interaction effect of FDI and financial development in these countries. The results show that FDI, domestic investment and openness have a positive effect on economic growth of this set of countries. But inflation has positive and insignificant effect on economic growth. Also, financial development has negative effect on economic growth. The interaction effect of FDI and financial development don't have significant effect on economic growth but in negative sign. Thus, FDI absorbing policies which relate to domestic financial institutions and infrastructure reforms suggested to enhancing economic growth of the countries.