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Does well banking performance attract FDI? Empirical evidence from the SAARC economies

Muhammad Tahir (Management Sciences, COMSATS University Islamabad, Abbottabad Campus, Abbottabad, Pakistan)
Md Badrul Alam (Institute of Business Administration, Jahangirnagar University, Savar, Bangladesh)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 14 October 2020

Abstract

Purpose

This paper empirically examines the perceived relationship between banking sector performance and FDI inflows, thereby highlighting an underexplored area in the existing literature.

Design/methodology/approach

To provide evidence from the South Asian context, this study selected five economies of the same region based on the data availability. A panel dataset, collected from the internationally reliable sources for the period 1998–2017, is analyzed with the help of different econometric techniques, including pooled least squares, fixed effects, generalized least square and two stages least squares.

Findings

The results indicate a significant negative relationship between banking sector performance and FDI inflows while demonstrating a significant positive association of inflation and trade openness with FDI inflows Moreover, higher per capita income, which is one of the indicators of a growing economy, exerts a statistically significant positive impact on FDI inflows. Finally, institutional factors have not played a significant role in attracting FDI in the sampled countries.

Practical implications

The results demonstrate a unique outcome from the perspective of the relationship between banking sector performance and FDI inflows, and hence policymakers of the developing countries in general and South Asian countries in particular would benefit from the current study significantly.

Originality/value

The obtained results are original as we have provided comprehensive evidence on the relationship between FDI and banking sector performance in the SAARC context for the first time.

Keywords

Acknowledgements

The authors are highly grateful to the area editor Dr. Moshfique Uddin and the three anonymous reviewers for their constructive comments, which immensely helped improve the quality of the paper significantly.Funding: The authors did not take any financial support from any organization to carry out the research. It was solely conducted for academic purpose.

Citation

Tahir, M. and Alam, M.B. (2020), "Does well banking performance attract FDI? Empirical evidence from the SAARC economies", International Journal of Emerging Markets, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJOEM-04-2020-0441

Publisher

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Emerald Publishing Limited

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