ABSTRACT
This chapter is a review of the impact of foreign direct investment (FDI), both outward and inward, on host and home country financial development. Conventional analysis is that FDI is mutually beneficial to home and host countries, in that there is diversification of investments and fresh sources of funds, technology and markets for host countries. Such diversification of funds enables the deepening of financial markets, since long-term investments require long-term funding, in terms of either project loans or equity capital. Using a case study of Malaysia and other country experience, the chapter notes that home country investors need to appreciate local culture and understanding of local conditions to make such ODI successful.
