FDI AND STOCK MARKET DEVELOPMENT IN SELECTED LATIN AMERICAN COUNTRIES

This paper analyzes two views on the issue of FDI and stock market development. The first view is that FDI is negatively correlated with the development of stock markets. The second view is that FDI is positively related to stock market development. After addressing the issues that might lead to these conclusions, the hypothesis is tested that the level of stock market development in a country is positively correlated to FDI. Data is collected from four Latin American countries and an empirical model is proposed to explain the observed relationship. Additional explanatory variables were included, and a model is developed.