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<p>The financial sector of the Central Asian countries is underdeveloped and vulnerable to external shocks resulting from commodity price fluctuations. This study aims to examine the effect of foreign direct investment (FDI) from China, Russia, and Türkiye, along with the institutional quality, on the financial development (FD) of the Central Asian countries by using quarterly data from 2007 to 2021. This is accomplished by employing the PCSE, FGLS,and panel DOLS techniques, as well as the Dumitrescu-Hurlin causality test. The outcomes indicate a significant and positive effect of FDI from Türkiye, along with Russian FDI, on the financial expansion of the Central Asian region. The positive effect of FDI from Türkiye is rooted in cultural links and FDI structural specifics, which are significant in the promotion of FD in this region. However, there is no significant effect of FDI from China on FD. In addition, the outcomes show that the effectiveness of government, regulatory quality, control over corruption, and a rule of law boost investor confidence and contribute to the FD of these states.</p>

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The role of China, Russia, and Türkiye in the financial development of Central Asia

  • 期刊论文

  • 发表日期：

    2026年5月11日

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  • Aliya Zhakanova,
  • Indra Overland,
  • Roman Vakulchuk

摘要

The financial sector of the Central Asian countries is underdeveloped and vulnerable to external shocks resulting from commodity price fluctuations. This study aims to examine the effect of foreign direct investment (FDI) from China, Russia, and Türkiye, along with the institutional quality, on the financial development (FD) of the Central Asian countries by using quarterly data from 2007 to 2021. This is accomplished by employing the PCSE, FGLS,and panel DOLS techniques, as well as the Dumitrescu-Hurlin causality test. The outcomes indicate a significant and positive effect of FDI from Türkiye, along with Russian FDI, on the financial expansion of the Central Asian region. The positive effect of FDI from Türkiye is rooted in cultural links and FDI structural specifics, which are significant in the promotion of FD in this region. However, there is no significant effect of FDI from China on FD. In addition, the outcomes show that the effectiveness of government, regulatory quality, control over corruption, and a rule of law boost investor confidence and contribute to the FD of these states.