This paper explores the relationship between foreign direct investment (FDI), financial development, and economic growth. The authors argue that a well-developed financial system is a crucial precondition for FDI to positively impact economic growth. A more developed financial system enhances resource allocation efficiency and improves a country's ability to absorb FDI inflows, thereby facilitating technological diffusion. The empirical investigation, covering 67 countries from 1970 to 1995, finds that 37 countries have sufficiently developed financial systems to allow FDI to contribute positively to economic growth, primarily in Latin America and Asia. The results suggest that FDI's positive effect on economic growth is contingent on the level of financial development, with a threshold credit-to-GDP ratio of around 12% being necessary for FDI to have a significant impact. The findings have policy implications, indicating that countries should prioritize financial sector development before liberalizing their capital accounts to maximize the benefits of FDI.This paper explores the relationship between foreign direct investment (FDI), financial development, and economic growth. The authors argue that a well-developed financial system is a crucial precondition for FDI to positively impact economic growth. A more developed financial system enhances resource allocation efficiency and improves a country's ability to absorb FDI inflows, thereby facilitating technological diffusion. The empirical investigation, covering 67 countries from 1970 to 1995, finds that 37 countries have sufficiently developed financial systems to allow FDI to contribute positively to economic growth, primarily in Latin America and Asia. The results suggest that FDI's positive effect on economic growth is contingent on the level of financial development, with a threshold credit-to-GDP ratio of around 12% being necessary for FDI to have a significant impact. The findings have policy implications, indicating that countries should prioritize financial sector development before liberalizing their capital accounts to maximize the benefits of FDI.