FINANCIAL DEVELOPMENT AND DOMESTIC INVESTMENT DYNAMICS IN EMERGING MARKETS

David Aboagye DANQUAH; Kunofiwa TSAURAI

doi:10.65672/fs.2026.3.3

FINANCIAL DEVELOPMENT AND DOMESTIC INVESTMENT DYNAMICS IN EMERGING MARKETS

Authors

David Aboagye DANQUAH - Department of Finance, Risk Management and Banking, University of South Africa, South Africa.
Kunofiwa TSAURAI - Department of Finance, Risk Management and Banking, University of South Africa, South Africa.

Landing page: https://www.icfm.ro/fs.icfm.ro/articles/vol30i3p55-90.html

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DOI: 10.65672/fs.2026.3.3

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Abstract

This study investigates the direct, moderating, and threshold effects of financial development on domestic investment in 15 emerging economies, focusing on whether human capital and technological development strengthen the finance-investment relationship and whether a critical level of financial development is required to maximise investment. The study employs an advanced dynamic panel framework using the Double-D System, Full GMM, CSD-Robust GMM, and Dynamic Fixed-Effects Threshold estimators on panel data covering 15 emerging economies from 2005 to 2024. The results reveal that financial development significantly promotes domestic investment. Moreover, human capital and technological development positively moderate this relationship, while threshold analysis identifies a financial development threshold of 0.524, beyond which the investment-enhancing effect of financial development becomes substantially stronger. The findings remain robust across alternative dynamic estimators. The findings imply that financial sector reforms should extend beyond financial deepening by simultaneously strengthening human capital, technological capability, and institutional quality to maximise domestic investment in emerging economies.

JEL Classification

C23, E22, G20, O16, O43

Keywords

absorptive capacity, sustainable development, human capital, technological development, dynamic threshold

How to cite

David Aboagye DANQUAH, Kunofiwa TSAURAI (2026). FINANCIAL DEVELOPMENT AND DOMESTIC INVESTMENT DYNAMICS IN EMERGING MARKETS. Financial Studies, 30(3), 55-90. DOI: 10.65672/fs.2026.3.3.

RePEc record

Handle: RePEc:vls:finstu:v:30:y:2026:i:3:p:55-90