FDI and economic growth - does the quality of banking development matter?

Haji Mohd Nor Nor Hakimah, Soo Wah Low, Abu Hassan Shaari Md Nor, Noor Azlan Ghazali

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

This study examines the role of banking development quality in the FDI-growth nexus from 1998 to 2009. Banking development quality is measured using two standardized intermediation cost indicators and an index of banking development quality that is constructed based on the following indicators: overhead costs to total assets and net interest margin. The results for developed countries show that, on its own, FDI is negatively related to economic growth. However, when FDI is interacted with a banking development quality index, the quality of banking development is found to play a positive role in influencing the effects of FDI on economic growth. This suggests that the quality of banking development serves as an absorptive capacity that allows developed countries to benefit from the positive growth effects of FDI. On the contrary, for emerging countries, the findings indicate that banking development quality plays no role in influencing the impact of FDI on economic growth. This implies that the quality of banking development in emerging countries has yet to reach a level that allows it to importantly influence the growth effects of FDI.

Original languageEnglish
Pages (from-to)287-303
Number of pages17
JournalGadjah Mada International Journal of Business
Volume15
Issue number3
Publication statusPublished - 2013

Fingerprint

Economic growth
Banking development
Developed countries
Emerging countries
Overhead costs
Intermediation
Costs
Assets
Interest margin
Absorptive capacity

Keywords

  • Banking development quality
  • Economic growth
  • Foreign direct investment

ASJC Scopus subject areas

  • Economics and Econometrics
  • Business and International Management

Cite this

FDI and economic growth - does the quality of banking development matter? / Nor Hakimah, Haji Mohd Nor; Low, Soo Wah; Md Nor, Abu Hassan Shaari; Ghazali, Noor Azlan.

In: Gadjah Mada International Journal of Business, Vol. 15, No. 3, 2013, p. 287-303.

Research output: Contribution to journalArticle

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