Does the Quality of Banking Assets Impact FDI Inflows? Evidence from 8 Western European Countries
Author(s)
Blessed Kwasi Adjei , Prof. Li Fang Lin ,
Download Full PDF Pages: 118-138 | Views: 611 | Downloads: 190 | DOI: 10.5281/zenodo.4922893
Abstract
This research paper focuses on the effects of banking assets quality on foreign direct investment (FDI) inflows in eight (8) western European nations using panel datasets spanning the period 2011 to 2018. Following theoretical backing on the variable selection which is in three-fold (Guyon and Andr´e Elisseeff, 2003): to improve the prediction performance of the predictors, provide faster and more cost-effective predictors, and lastly to provide a better understanding of the underlying process that generated the data, five components of assets were selected to measure bank’s asset quality. These are Total assets (TA), Loan loss reserves (LLR), net interest receivables (NIR), Loans and Profit/loss from bank real estate (RE). Findings from the panel data analysis showed a positive association between the quality of banking assets and the FDI inflows with other additional tests indicating the existence of long-run linkages between the variables. Also from the pairwise granger causality test, both bidirectional and unidirectional causal linkages were seen to exist between FDI inflows and the banking assets suggesting that pragmatic policies along these lines can help enhance these assets and as a result improve FDI inflows
Keywords
Panel data analysis, FDI inflows, Banking assets, Long run relationship, Western European countries, policies, variable selection techniques.
References
i. Prince Jaiblai, Vijay Shenai (2019). The Determinants of FDI in Sub-Saharan Economies:
A Study of Data from 1990–2017, International journal of financial studies.
ii. Dr. Emeritus Elisabeta JABA, Dr. Ioan-Bogdan ROBU, Dr. Christiana Brigitte BALAN (2017) Panel data analysis applied in financial performance assessment Alexandru Ioan Cuza University of Iasi, Romania
iii. Lily, Jaratin, Kogid Mori, Mulok Dullah, Sang Liem Thien, and Rozilee Asid. 2014. Exchange Rate Movement and Foreign Direct Investment in Asean Economies. Economics Research International 2014
iv. Dimple Goyal and Ritu Jain (2014). The Impact of FDI on Indian economy International Monthly Refereed Journal of Research in Management & Technology 88 ISSN – 2320-0073.
v. Paula Nistor (2014).FDI and economic growth, the case of Romania. Procedia Economics and Finance15 (2014) 577 – 582.
vi. Dr. Sevinç GÜLER ÖZÇALIK, Garmonyou Gerald Gibson (2016).Factors Affect Flow of Foreign Direct Investment (A Case Study of South Africa: 1970-2014). Research Journal of Finance and Accounting, ISSN 2222-1697
vii. Wang, J., & X. Wang (2015). Benefits of foreign ownership: Evidence from foreign direct investment in China. Journal of International Economics, 97(2), 325–338.
viii. Ramondo, N., V. Rappoport, & K. Ruhl (2014). Horizontal versus vertical foreign direct
investment: Evidence from us multinationals. UC San Diego Typescript
ix. Xaypanya, Phonesavanh, Poomthan Rangkakulnuwat, and Sasaiwimon Warumsiri Paweenawat. 2015. The determinants of foreign direct investment in ASEAN: The first differencing panel data analysis. International Journal of Social Economics
x. Poelhekke, S. (2018) Financial Globalization and Foreign Direct Investment, in Mariana
Spatareanu, ed., Foreign Direct Investment and the Multinational Enterprise, Volume 3 of
Francisco L. Rivera-Batiz, ed., The Encyclopedia of International Economics and Global
Trade, World Scientific Publishing Co., Singapore, chapter 3, forthcoming.
xi. Petar Kasavica and Zoran Jović (2015).Impact of asset quality on bank profitability - Case Study Industrija, Vol.43, No.4, 2015
xii. Konstantinos Dellis, David Sondermann, Isabel Vansteenkiste(2017). Determinants of FDI inflows in advanced economies: Does the quality of economic structures matter? ECB Working Paper 2066 May 2017
xiii. Blanchard, O. and J. Acalin (2016), What Does Measured FDI Actually Measure ? Peterson Institute for International Economics, Policy Brief, No PB16-17
xiv. Festus Kimanzi Nzoka (2015) University Of Nairobi (2015) The Effect Of Assets Quality On The Financial Performance Of Commercial Banks In Kenya.
xv. Pravin Jadhav (2014). Determinants of foreign direct investment in BRICS economies: Analysis of economic, institutional and political factor. Procedia - Social and Behavioral Sciences 37 (2012) 5 – 14.
xvi. Seid Mahmud Abdela (2015). Foreign Direct Investment (FDI) and Its Determinants: The Case of Sub- Saharan African (SSA) Countries.
xvii. Boateng, E., Amponsah, M., &AnnorBaah, C. (2017). Complementarity Effect of Financial Development and FDI on Investment in Sub‐Saharan Africa: A Panel Data Analysis. African Development Review, 29(2), 305-318
xviii. Dr. Devesh Kumar (2017) FDI in India: A Review. Shri Venkateshwara University
xix. Thi Hong Hanh PHAM, Thinh Duc NGUYEN (2013) Foreign Direct Investment, Exports and Real Exchange Rate Linkages: Vietnam Evidence from a Cointegration Approach
xx. Eyup Kadioglu, Niyazi Telceken & Nurcan Ocal (2017) Effect of the Asset Quality on the Bank Profitability International Journal of Economics and Finance; Vol. 9, No. 7; 2017ISSN 1916-971X
xxi. Dervis Kirikkaleli (2013) Foreign Direct Investment in the Banking Sector: Empirical Evidence from Turkey. Stirling Management School, Department of Economics
xxii. Nor Hakimah Haji Mohd. Nor, Soo-Wah Low, Abu Hassan Shaari Md Nor, and Noor A. Ghazali (2013) FDI and Economic Growth — Does the Quality of Banking Development Matter? Gadjah Mada International Journal of Business Vol. 15, No. 3
xxiii. Akluli Gebrehiwot, Naser Esfahani, Mustafa Sayim (2016). The Relation between FDI and financial market development: The case of Sub-Saharan African Region. International journal of Regional development ISSN 2373-9851
xxiv. Abata, M. A. (2014). Asset Quality and Bank Performance: A Study of Commercial Banks in Nigeria. Research Journal of Finance and Accounting 5 (18), 39-44
xxv. Eze, G. P., & Ogbulu, O. M. (2016). Asset Quality Management and the Performance of Deposit Money Banks in Nigeria: A Co-integration and Variance Decomposition Analysis. International Journal of Economics and Financial Research, 2 (3) 41-54.
xxvi. Emmanuel Adu Boahen, Oteng Evans (2014). The effect of exchange rate volatility on foreign direct investment in Ghana International Journal of Economic Behavior and Organization 2014; 2(2): 20-28.
xxvii. Phillips, P. C. B., & Perron, P. (1988) Testing for a unit root in time series regression.Biometrika, 75(2), 335-346. https://doi.org/10.1093/biomet/75.2.33
xxviii. Im, K. S ., Pesaran, M., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels.Journal of Econometrics, 115(1), 53-74 https://doi.org/10.1016/S0304-4076(03)00092-7
xxix. Reinout De Bock and Alexander Demyanets (2012) Bank Asset Quality in Emerging Markets: Determinants and Spillovers. IMF Working Paper 12/71
xxx. Arpita Ghosh (2013). Asset Quality of banks: Evidence from India. Assistant Professor, IIM Calcutta (Finance and Control Group)
xxxi. Ferrouhi, El Mehdi (2018). Determinants of banks’ profitability and performance: an overview. MPRA Paper No. 89470. https://mpra.ub.uni-muenchen.de/89470/
xxxii. Milan Šušić. (2018) Importance and Impact of Foreign Investment on the Economic Development of Bosnia And Herzegovina University of Business Studies Banja Luka, Faculty of Business and Financial Studies, Bosnia and Herzegovina. Economics vol.6, No.1, 2018.ISSN 2303, 5005
xxxiii. Dickey, D. A., & Fuller, W. A. (1979). Distribution of the Estimators for Autoregressive Time Series with a Unit Root Journal of the American Statistical Association, 74 (366), 427-431. Https: //doi.org/ 10. 2307/2286348
xxxiv. Soumali Bose and Bindya Kohl. (2018) Study of FDI Trends and Patterns in BRICS Economies during the Period 1990–2015. Emerging Economy Studies 4(1) 78–101
Cite this Article: