Role of financial sector development in foreign direct investment inflows in BRICS

Abstract

This study examined the influence of financial sector development on FDI inflows in BRICS using panel data (1991–2020) analysis methods. The influence of the complementarity between the financial sector and human capital development on FDI inflows was also examined in the context of BRICS using the same data set and econometric methodologies. The advantage of this study is that the results are used as a basis by BRICS countries to develop financial sector development policies that attract significant FDI inflows. Financial sector development (model 2 and 3 of the pooled ordinary least squares approach) significantly enhanced FDI inflows. Human capital development (model 3 of the fully modified ordinary least squares) was found to have had a significant positive effect on FDI inflows in BRICS group of countries. The combination between financial and human capital development under (1) model 1 of the fully modified ordinary least squares and (2) models 2 and 3 of the pooled ordinary least squares (POLS) was observed to have significantly enhanced FDI inflows in BRICS. The study outlines the financial and human capital development recommendations that need to be implemented to facilitate more FDI inflows. Acknowledgment Kunofiwa Tsaurai is grateful for the moral support from his employer, University of South Africa.