Financial development has an important role in absorbing foreign direct investment (FDI) in order to achieve economic growth, according to the emerging literature on FDI. This paper provides support for this hypothesis in the context of D8 countries. The results show that positive impact of FDI on the growth depends on absorptive capacities. The financial development is one of the most important among the capacities. Empirical analysis, using cross-country data between 2004 and 2013 shows that FDI could not have an independent effect on the growth of D8 countries. Independent effect of FDI on growth could be obtained when FDI is interacted with a threshold level of financial development equal to 3.39. Therefore, focus on the internal changes in the financial markets is necessary in the countries studied before the process of attracting foreign direct investment. More importantly, based on the findings
domestic investment can play an ambiguous role in contributing to economic growth.
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