Financial Development and Foreign Direct Investment—The Moderating Role of Quality Institutions

Considering the importance of foreign direct investment (FDI) inflows for the sustainable economic advancement of a host country, this paper investigates the financial development and FDI nexus, using institutional quality as a moderator. The sample consists of 79 Belt and Road Initiative (BRI) partner countries, as these countries are entering a new age of integration, foreign trade, and mutual development. The empirical findings of conventional and robust estimators show that the financial development of BRI host countries significantly attracts FDI, while the institutional quality plays a significant moderating role in this relation. The in-depth analysis offers the insight that financial markets are less attractive to FDI relative to financial institutions. Thus, policymakers are advised to uphold sound financial institutions to…