Do credit risks deter FDI? Empirical evidence from the SAARC countries

IF 2.3 Q2 ECONOMICS
Md Badrul Alam, Muhammad Tahir, Norulazidah Omar Ali
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Abstract

Purpose This paper makes a novel attempt to estimate the potential impact of credit risk on foreign direct investment (FDI hereafter), thereby focusing on a completely unexplored area in the existing empirical literature. Design/methodology/approach To provide a comprehensive understanding of the relationship between credit risk and FDI inflows, the study incorporates all the eight-member economies of the South Asian Association of Regional Cooperation (SAARC hereafter) and analyzes a panel data set, over the period 2011 to 2019, extracted from the World Development Indicators, using the suitable econometric techniques for the efficient estimations of the specified models. Findings The results indicate a negative and statistically significant relationship between the credit risk of the banking sectors and FDI inflows. Similarly, market size and inflation rate appear to be the two other main factors behind the increasing FDI inflows in the SAARC member economies. Interestingly, the size of the market became irrelevant in attracting FDI inflows when the Indian economy is excluded from the sample due to its higher economic weight. On the other hand, FDI inflows are not dependent on the level of trade openness, with most of the specifications showing either an insignificant or negative coefficient of the variable. Practical implications The obtained results are unique and robust to alternative methodologies, and hence, the SAARC economies could consider them as the critical inputs in formulating the appropriate policies on FDI inflows. Originality/value The findings are unique and original. The authors have established a relationship between credit risk and FDI for the first time in the SAARC context.
信用风险会阻碍外国直接投资吗?来自南盟国家的经验证据
本文对信用风险对外国直接投资(FDI)的潜在影响进行了新颖的估计,从而关注了现有实证文献中完全未开发的领域。为了全面了解信贷风险与外国直接投资流入之间的关系,本研究纳入了南亚区域合作联盟(SAARC)的所有八个成员国,并分析了2011年至2019年期间从世界发展指标中提取的面板数据集,使用适当的计量经济学技术对特定模型进行了有效估计。研究结果表明,银行业信贷风险与FDI流入之间存在显著的负相关关系。同样,市场规模和通货膨胀率似乎是南盟成员国经济中外国直接投资流入增加的另外两个主要因素。有趣的是,当印度经济由于其较高的经济权重而被排除在样本之外时,市场规模在吸引外国直接投资流入方面变得无关紧要。另一方面,外国直接投资流入不依赖于贸易开放程度,大多数指标显示该变量的系数不显著或为负。实际影响所获得的结果对其他方法来说是独特而有力的,因此南盟各经济体可将其视为制定有关外国直接投资流入的适当政策的关键投入。原创性/价值这些发现是独一无二的。作者首次在南盟背景下建立了信用风险与FDI之间的关系。
本文章由计算机程序翻译,如有差异,请以英文原文为准。
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来源期刊
Journal of Economics, Finance and Administrative Science
Journal of Economics, Finance and Administrative Science Economics, Econometrics and Finance-Economics, Econometrics and Finance (all)
CiteScore
5.10
自引率
20.80%
发文量
23
审稿时长
12 weeks
期刊介绍: The Universidad ESAN, with more than 50 years of experience in the higher education field and post graduate studies, desires to contribute to the academic community with the most outstanding pieces of research. We gratefully welcome suggestions and contributions from business areas such as operations, supply chain, economics, finance and administration. We publish twice a year, six articles for each issue.
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