This study explores the feedback relationship between two elementary sources of capital, that is, foreign direct investment and stock market development. Using data from five developing economies, the study uses panel data approach to explore bidirectional interrelationship of the two capital sources. Fixed effects and random effects panel data analysis has been used to explore the relationship between Foreign Direct Investment (FDI) and Stock Market Development (SMD). Results reveal there is relationship between the two variables. The causality of relationship is from SMD to the FDI. If the stock markets are developed, they would attract more FDI into the country. The results have policy implications for economies.

Keywords: Foreign Direct Investment (FDI), Stock Market Development (SMD), developing economies, economic growth.