【Abstract】

In the year of 2015, the Chinese government launched the “Belt and Road” initiative to contribute to the common development driven by investment cooperation. We collect data from 50 countries along “The Belt and Road” during 1989-2011 as a sample to analyze the effect of FDI on financial development. The empirical results show that FDI could significantly improve the financial development of the host country, especially the development of the financial market. Further analysis demonstrates that FDI is a stronger driver to financial development in countries with better system quality, i.e. countries with less corruption, better legal system and less ethnic conflict. Moreover, FDI can not only increase the number of financial resources (financial deepening), but also can enhance the financial quality (financial function). Various model settings and estimation methods all come to the conclusions mentioned above. Foreign direct investment in “The Belt and Road” countries including Chinese can help improve their financial systems, which in turn promotes the economic development.

【Keywords】

Financial development, FDI, Institutional quality, The Belt and Road

【Authors】

Abuduwali Aibai, School of Finance, Xinjiang University of Finance and Economics. 

Huang Xianjing, Business School and China-ASEAN Research Institute, Guangxi University. 

Luo yu, Research Fellow of IMI, School of Finance, China Financial Policy Research Center, and International Monetary Institute, Renmin University of China. 

Peng Yuchao, Research Fellow of IMI, School of Finance and Belt & Road Finance Institute, Central University of Finance and Economics.