FDI and Economic Growth — Does the Quality of Banking Development Matter?

Nor Hakimah Haji Mohd; Soo-Wah Low; Abu Hassan Shaari Md Nor; Noor A. Ghazali

Nor Hakimah Haji Mohd Kolej Universiti Islam Antarabangsa Selangor
Soo-Wah Low Universiti Kebangsaan Malaysia
Abu Hassan Shaari Md Nor Universiti Kebangsaan Malaysia
Noor A. Ghazali Universiti Kebangsaan Malaysia

Keywords: economic growth, banking, FDI

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.

Author Biographies

Nor Hakimah Haji Mohd, Kolej Universiti Islam Antarabangsa Selangor

NOR HAKIMAH, Haji Mohd Nor is a Lecturer at the Kolej Universiti Islam Antarabangsa Selangor and currently a doctoral student at the UKM-Graduate School of Business, Universiti Kebangsaan Malaysia (The National University of Malaysia). She received her Diploma in Banking Studies and her BBA. (Hons) (Finance) from Universiti Teknologi MARA, her MSc. in Banking and Finance from Loughborough University, UK. She has a Islamic Financial Planner certification awarded by the Financial Planning Association of Malaysia and the Islamic Banking and Finance Institute Malaysia. Her research interests include financial development and FDI.
Author’s Contact details: Faculty of Management and Muamalah, Kolej Universiti Islam Antarabangsa Selangor, Bandar Seri Putra, 43000 Kajang, Selangor, Tel. No.: +603 8925 4251, e-mail: norhakimah@kuis.edu.my.

Soo-Wah Low, Universiti Kebangsaan Malaysia

LOW, Soo-Wah is an Associate Professor at the UKM-Graduate School of Business, Universiti Kebangsaan Malaysia (The National University of Malaysia). She received her Bachelor of Business Administration from Universiti Kebangsaan Malaysia, her MBA and PhD from University of Arkansas, Fayetteville, USA. Her current research interests include unit trust/mutual funds, IPOs, financial development and issues related to Asian financial markets.
Author’s Contact details: UKM-Graduate School of Business, Universiti Kebangsaan Malaysia, 43600, UKM Bangi, Selangor, Malaysia. Tel. No.: +603 89213479, email: swlow@ukm.my.

Abu Hassan Shaari Md Nor, Universiti Kebangsaan Malaysia

MD NOR, Abu Hassan Shaari is a Professor at the Faculty of Economics and Management, Universiti Kebangsaan Malaysia (The National University of Malaysia). He received his B.S. (Mathematics) from Southern Illinois University, a MS. (Statistics) from The University of Iowa, and a PhD. (Statistics) from Oklahoma State University. His research interests are in the fields of applied econometrics and applied statistics.
Author’s Contact details: School of Economics, Faculty of Economics and Management, Universiti Kebangsaan Malaysia, 43600 UKM Bangi, Selangor, Tel. No.: +603 8921 5555, e-mail: ahassan@ukm.my.

Noor A. Ghazali, Universiti Kebangsaan Malaysia

GHAZALI, Noor Azlan is a Professor of Economics at the UKM-Graduate School of Business, Universiti Kebangsaan Malaysia (The National University of Malaysia). He received his B.Sc. Bus. Adm. (Finance), MBA, and PhD from the University of Nebraska-Lincoln, USA and MPA from the Kennedy School of Government (KSG), Harvard University, USA. Noor A. Ghazali’s research specialization includes financial and monetary economics, banking and international economics and finance. He was a recipient of the Commonwealth Academic Staff Fellowship in 2003 awarded by the Association of Commonwealth Universities (ACU), London.
Author’s Contact details: UKM-Graduate School of Business, Universiti Kebangsaan Malaysia, 43600, UKM Bangi, Selangor, Malaysia. Tel. No.: +603 89215781, email: nag@ukm.my.

References

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