Foreign Direct Investment, International Trade and Financial Development in BRICS-T Countries: A Bootstrap Panel Causality Analysis

The aim of this paper is to investigate, within a Bootstrap panel causality approach, the interactions among foreign direct investment (FDI), international trade and financial development in BRICS-T countries (Brazil, Russia, India, China South Africa and Turkey). While the effect of foreign direct investment on economic growth is well documented, the consequences of FDI on financial development have not received as much attention. Previous studies have recognized that FDI is a crucial source of financing especially for emerging economies, though the benefit of FDI to recipient country is ambiguous. Furthermore, the number of previous studies examining the causal linkage between international trade and financial development is also limited. Besides, examining the associations among these factors, this study also investigates the joint effect of FDI and international trade on financial development in these countries. Empirical findings from a bootstrap panel causality approach indicate that FDI induce financial development in Brazil, Russia, and China. In addition, international trade promotes financial market development in Brazil, Russia and South Africa. Empirical findings also indicate that financial development stimulates international trade in Brazil, India and Turkey. Finally, it is found in this study that not only international trade stimulates FDI, but also FDI induce international trade in India and Turkey.