FDI inflows, financial development, and GDP growth in the epoch of financial technology: the role of national innovation capacity

Abstract

This research explores the impact of Fintech on different economic factors: Foreign direct investment, Financial Development, and GDP growth. After removing missing observations, the data is collected from 135 countries, including 1629 observations in 12 years from 2011 to 2022, Fintech’s development has a positive impact on Foreign direct investment and Financial Development, which proposes another method for policymakers to improve their national investment environment by improving Fintech. The results found that Economic Complexity and Innovation have a statistically significant and positive effect on Fintech - FDI linkage. Nevertheless, there is a difference between the high and the low ECI (Economic Complexity Index) countries, with the less influenced interaction between Fintech and Financial Development for higher-level countries compared to the lower-level ones. Fintech also has a greater impact on GDP growth in low-FDI countries than it does in high-FDI countries. After handling endogeneity with a dynamic method derived from a two-stage system GMM estimation, our results are found to be robust. Overall, our study contributes to the research of Fintech, suggesting some potential implications to be used in attracting foreign investment.