DOES WELL BANKING PERFORMANCE

ATTRACT FDI? EMPIRICAL EVIDENCE

FROM THE SAARC ECONOMIES.
INTERNATIONAL FINACNE MANAGEMENT(FIN503)

SUBMITTED TO:
Md Badrul Alam

Assistant Professor

Institute of Business Administration- JU

SUBMITTED BY.

Md Najmul Islam

Batch-20th

ID:201901019
1.Write a summary in your own words about the FDI inflows of the SAARC
Countries. [ 200-250 words.

The South Asian Association for Regional Cooperation (SAARC), has been
founded in 1985, eight has eight member economies at the beginning. SAARC
countries have relatively high economic growth, cheap labor forces, numerous
greenfield investment opportunities and burgeoning markets for different
product and services. in 1990s and early 2000s South Asian countries become
liberalized. Since then this region gets attraction of the foreign investors. In the
recent years many South Asian countries are experiencing high volume of FDI
inflows. Albeit, FDI inflows in the SAARC member countries are low compared
to other countries in Asia and All the SAARC member countries are developing
nations. FDI is generally considered as a great tool of economic growth and
development. However, The South Asian Association for Regional Cooperation
member countries are not very much successful in getting FDI. SA by relatively
high economic growth, cheap labor forces, numerous greenfield investment
opportunities and burgeoning markets for different product and services.
Bangladesh, India, Nepal, Pakistan & Sri Lanka had been experiencing a higher
percentage of FDI inflows to their gross domestic products (GDP) over the 20-
year period starting from 1998 to 2017. To attract more FDIs, five
aforementioned SAARC countries, in 1990s, brought many changes in their
macroeconomic policies, incorporating the withdrawal of the minimum Does
well banking performance attract FDI? equity stake owned by domestic firms.
removing the limitations for foreign investments in some previously restricted
sectors and provision for tax incentives for some specific industrial
investments is one of the microeconomic innative to attract FDI.
2.Read the literature review section carefully and identify some relevant factors
affecting FDI. You also need to write a brief explanation on the factors. [150-200
words]

Factors that affect FDI:

 Change in restriction: sometime there are restrictions against FDI in

some countries. Those countries restrict FDI when they believe FDI can
make threat in prosperity of host country’s companies. In that case FDI
hardly happens to that country.

 Privatization: There should be necessary opportunities for primitive

companies. If got. start doing business aggressively in an industry there
will not be level playing field of doing business and those private
companies cannot flourish properly. so host country needs to create that
environment to attract private and FDI as well.

Example: Bangladesh provided license to private banks in 1983 Now there are 44
private banks in Bangladesh.

 Potential economic growth: develop country analyses countries

transportation, facilities, growth rate etc. before doing FDI on that country.
they calculate their profitability and survive possibility in a long run. If their
growth is low that indicate that their product price and demand will low
and this is how they become underrated in FDI market.

 Tax Rate: Corporate tax rate has a significant influence on the FDI market.
foreign company will get their profit after paying there corporate tax.so
high corporate tax has a bad influence on the foreign economy.so country
keep their corporate rate low to attract them on FDI.
  Per capita GDP: GDP employment and FDI are interrelated. FDI has a
positive link with per capita GDP, because GDP indicate more jobs
opportunity in the home nation. If GDP increases, employment
opportunities increase, and FDI increases also.
 Exchange rate: exchange rate is one of the concern, proper exchange rate
defines proper economic stability of the country.

3. Read the Model specification, sampling, and data collection section carefully
and write down the factors included as the determinants of FDI. You also need
to provide some reasons for each factor.

There are some Microeconomic and Institutional factors included in this portion
of this paper as the determinants of Foreign Direct Investment (FDI). These
factors are explaining below:

 Economics Factors:

a) Exchange rate: exchange rate has e greater impact of FDI. Exchange rate
determined the value of host countries. if organization feels that the
countries exchange rate is potential then it will have a positive vibe on
direct investment. Low exchange rate means low profit.
a) Trade Openness: Trade Openness and FDI inflows has a positive relation. It
is one of the most important indicators of an open economy. Higher degree
of trade openness attracts more FDI inflows. The degree of openness is
measured by the actual size of registered imports and exports of an
economy. Higher degree means raises of imports and exports of goods and
services. Thus, production process becomes more effective and productivity
rises. As a result, attraction of FDI inflows increase.

b) Inflation: FDI inflows and Inflation has a negative relation. Increasing

inflation will increase materials, labor and production cost. Thus, Foreign
investors won’t be willing to invest here. But moderate inflation can attract
FDI inflows. Moderate inflation is the reflection of growing and profit
generating market of the host country. Profit generating market may
attract foreign investors.

c) Economic Stability: FDI inflows and Economic growth are positively related.
Any foreign investors will be willing to invest in high economic growth
market to acquire the prospective benefits of local markets and to generate
higher profit.

 Others Factors:

a) policies and guidelines: Policies and guidelines are one of the most
influential factor of FDI. Proper policies attract investor and policies
should be investor friendly. There are always should be proper guidance
for the investor as well.

b) Implications of law: implication of law determines the Country’s

business opportunities and business environment. with strong rule of
 law compliance will attract more FDI inflows. Because strong rule of law
means high level and political safeguards. It means high level of financial
securities. Thus, foreign investors will feel safe to invest their money in
the countries with strong rule of law.

c) Political stability and absence of violence: Political instability and

violence cause economic breakdown. Financial market will fall down
because of instability. So, foreign investors will always be willing to
invest in a country with political stability and absence of violence.
Stability means smooth economy. And smooth economy always attracts
FDI inflows.

4.Read the results and interpretation section carefully and write down the
impact of each factor on FDI inflows. You also need to develop some
justification regarding the relationship between each factor and FDI. [150-
200 words]

FDI is an investment including a long-term relationship and reflecting a lasting

interest and control of a resident entity in one economy. FDI is a combination
of capital, technology, marketing and management. Based on the Neoclassical,
Exogenous and modern theories FDI has a positive role in accelerating
economic growth and development. Many countries are improving their
economy in order to attract FDI. The result of panel data estimation shows
that Fixed effects model is appropriate for estimating the parameters. In
conclusion, developing countries should diversify their FDI inflows and
outflows to cover all the sectors and they should benefit from the developed
countries’ experiences with higher impact of FDI on economic growth. I find
that control of corruption, government effectiveness, and the voice and
accountability have significant positive impacts on FDI flows. This finding
indicates that reducing corruption and the excessive burden of bureaucracy,
 improvements in the political system, and transparency and accountability in
politicians lead to an increase in FDI inflows and encourage multinationals to
bring capital into a developing country. Furthermore, exercising policies to
enhance the participation of citizens in a political system, e.g., by selecting
their government, as well as the protection of civil rights, might increase FDI
flows.

5. Finally, you must suggest some other factors which could have been used to
improve the research or to conduct any further study. [ 80-100 words]

Some issues can be considered for future study; they are given below.

Real data including. More real data could have been included. because real
data show the actual result and real data makes any research authentic and
less bios.

Flexible policy: this is a very important factor regarding this issues. We may
often see that due to government policy there is always create a miss
understanding. Deep research may help to find the solution.

Exchange rate stability: it also a very important factor due to political

instability or some other reason the exchange rate fluctuates very much. In
future it may a very useful for this research.

Scope of market study: proper market study is one of the great element of
any research we need to think about the market opportunity elaborately
because we know it's a huge market. If you use proper market study your
research will be more authentic.