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to DCPS and PCDM and CPI to real GDP per capita. The linkage is however broken between financial development-FDI nexus in short term. The error-correction terms presented in the last column of all models demonstrated that the burden of the short-run endogenous adjustment (in long-run trend) to bring the system back to its long-run equilibrium borne by the FDI, financial development and CPI

Dependent variable Independent variables ECTt-1

Accounting and Finance - New Perspectives on Banking, Financial Statements and Reporting

Wald F-statistics

<sup>Δ</sup>FDI — 2.106 0.935 2.201 0.136\*\*\* (4.292) <sup>Δ</sup>FinDev 0.052 — 0.345 3.213 0.016\*\*\* (2.375) <sup>Δ</sup>RGDPPC 2.263 24.223\*\*\* — 0.902 0.001 (0.55) <sup>Δ</sup>CPI 17.821\*\*\* 23.688\*\*\* 4.793\* — 0.012\*\*\* (4.064)

<sup>Δ</sup>FDI — 0.331 1.021 1.871 0.081\*\*\* (3.921) <sup>Δ</sup>FinDev 4.542 — 0.726 0.996 0.005\* (1.923) ΔRGDPPC 2.929 3.101 — 1.827 6.947 (0.047) <sup>Δ</sup>CPI 17.615\*\*\* 1.287 3.332 — 0.010\*\*\* (5.375)

<sup>Δ</sup>FDI — 2.210 1.029 2.224 0.084\*\*\* (3.588) <sup>Δ</sup>FinDev 1.300 — 0.254 1.420 0.011\*\*\* (3.489) <sup>Δ</sup>RGDPPC 2.000 44.048\*\*\* — 2.940 0.001 (0.342) <sup>Δ</sup>CPI 14.846\*\*\* 9.414\*\*\* 4.079 — 0.011\*\*\* (5.106)

ΔFDI ΔFinDev ΔRGDPPC ΔCPI Coefficient (t-statistic)

The financial development, FDI, CPI and real GDP per capita is cointegrated by considering cross-sectional dependence. The relationship between the financial development and FDI in ASEAN-5 countries is found nonlinear of U-shape over the period from 1980 to 2017. Based on the findings from the quadratic model, financial development contributed towards promoting FDI after surpassed the threshold level at 70% of GDP or median score. It is important to understand how the

financial development affects FDI. The results demonstrated that there exists crosssectional dependence among ASEAN-5 countries which this supports the argument of geographic influence on financial integration as well as FDI inflows. Economic integration has a direct effect on internationalization by reducing transaction costs

equations.

54

Table 11.

6. Conclusion

Model 1: FinDev = DCPS

Model 2: FinDev = LL

Model 3: FinDev = PCDM

ECT is error-correction term. \*\*\*Significant at 1% level. \* Significant at 10% level.

Granger causality based on panel VECM estimation.

and partial information costs [30].

Elya Nabila Abdul Bahri<sup>1</sup> \* and Nor Hakimah Haji Mohd Nor2

1 University of Malaya, Kuala Lumpur, Malaysia

2 Kolej Universiti Islam Antarabangsa Selangor, Kajang, Malaysia

\*Address all correspondence to: elyanabila@um.edu.my

© 2019 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/ by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
