FDI & New Business Startups: Does Financial Development Matter?

Abstract

: The present paper intends to investigate the relationship of foreign direct investment and new business startups in the presence of financial development in EAGLE countries, an annual unbalanced data during the period from 2006 to 2016 is used. We apply system GMM approach to estimate the models. Findings suggest that foreign direct inflows boost new business start-ups in emerging countries. Moreover, the two measures of financial development, domestic credit to private and financial sector have shown a significant and positive relationship with FDI. However, the mix results of business regulations and business density is found, in model 1 and 3, the relationship is positive, whereas, in model 2 and 4, the relationship is negative but insignificant. Essentially, it is also noted that financial development facilitates the positive spillovers of FDI on new business startups. Therefore, we advise policymakers to regularize the financial market in such a manner that attracts more FDI and eventually augment the new business opportunities.