Foreign Direct Investment and Financial Development: Evidence from Selected Arab League Countries

Abstract

This study examined the impact of foreign direct investment on financial development in selected Arab League countries (Algeria, Comoros, Egypt, Jordan, Kuwait, Lebanon, Mauritania, Oman, and Qatar) for the period from 2010 to 2021. The study used one explanatory variable — financial development — and one explained variable — foreign direct investment. To obtain reliable and valid results, panel data were analyzed, and various tests were carried out, including the Chow test, Breusch-Pagan Lagrange multiplier test, Hausman test, Jarque-Bera normality test, Wooldridge test, generalized least squares, and ordinary least squares. The robust model of the study revealed a positive and significant relationship between foreign direct investment and the financial development index, human development index, and interest rate. Also, there is a negative and significant relationship between foreign direct investment and the consumer price index and domestic credit to private sector. Based on these findings, the study recommends that Arab League countries’ policies and strategies should attract foreign investors to maintain and sustain economic developmental goals for healthy, literate, and wealthy lives.