Banking sector performance and FDI inflows in Bangladesh: exploring the unexplored

Abstract

PurposeThis research paper attempts to empirically examine the relationship between the performance of the banking industry and foreign direct investment (FDI), thereby helping the readers contemplate one of the least explored areas of the existing literature associated with the idiosyncratic characteristics of FDI resulting from its interaction with the efficient banking performance of the host country. The study has focused on the economy of Bangladesh because of its significant amount of FDI inflows from the rest of the world and its adoption of many liberalization policies, especially in the banking sector and in the areas of international business and trade.Design/methodology/approachThe study, to produce unbiased estimates, employed the autoregressive distributed lag (ARDL) model for analyzing the time series data collected from reliable sources.FindingsThe key outcomes of the study reveal that the sound performance of the banking industry appears to be counterproductive for FDI inflows, which is a bit unconventional insight. In the context of Bangladesh, trade openness, inflation rate and infrastructural development seem to be the dominant factors behind the rising inflows of FDI. Market size appears to be an insignificant determinant of FDI inflows.Originality/valueThis is a unique study because of its focus on the unexplored area in the literature.