Do Bank Linkages Facilitate Foreign Direct Investment? An Analysis of Global Evidence

Xueting Liao, Cheng Yu and Lijuan Xie ()
Additional contact information
Xueting Liao: School of Business, Nanjing Normal University, Nanjing 210023, China
Cheng Yu: School of Economics, Fudan University, Shanghai 200433, China
Lijuan Xie: School of Business, Nanjing University, Nanjing 210093, China

Sustainability, 2024, vol. 16, issue 22, 1-16

Abstract: Foreign direct investment (FDI) is essential for enhancing economic resilience and promoting sustainable development. However, inefficiencies in financial connectivity and capital allocation have hindered the facilitation of FDI. Bank linkages between countries in the global sectors of multinational enterprises (MNEs) offer potential solutions to these challenges. In this paper, we focus on whether sustainable FDI can benefit from consolidating bank linkages, which are measured for each pair of countries in each year as the number of bank pairs in both countries that are connected through cross-border syndicated lending. Using the gravity model, we provide empirical evidence based on cross-border data to support the following conclusions: (1) Bank linkages can sustainably enhance the host country’s attractiveness to FDI through information, external financing, and international financial services channels. (2) This positive effect is pronounced in host countries with lower financial development, weaker institution quality, and higher investment risk while remaining insignificant for OECD countries. (3) Bank linkages exhibit a lagged impact on FDI, but newly established bank linkages are more conducive to inward FDI than those established earlier. In this paper, we offer some policy implications for emerging economies and suggest that emerging economies should continue to deepen their financial openness and strengthen international bank links through various means to attract more inward FDI.

Keywords: bank linkages; FDI; external financing; heterogeneity (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/2071-1050/16/22/9815/pdf (application/pdf)
https://www.mdpi.com/2071-1050/16/22/9815/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:16:y:2024:i:22:p:9815-:d:1518222

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().