Banking sector stability and foreign direct investment inflows in Ghana

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FDI inflows into developing countries serve as invaluable tool in catapulting developing countries into economic growth. Nonetheless, it is important to note that attracting FDI into a country requires more than just verbal rhetoric but a conscious effort to put in place pragmatic policies and strategies to pull foreign investors from the competitive world of business. Essentially this study has looked how the stability of the banking sector affects FDI inflows into the Ghanaian economy. The study specifically sought to examine the link between banking sector stability measure by three core indicators, namely capital adequacy, ROA, and liquidity and FDI inflows in Ghana. The study employed the quantitative research approach based on the explanatory type of study. The study used secondary data covering a period of 10 years from 2009-2018 which was analyzed with the help of STATA statistical software. The study found that capital adequacy (CA) and liquidity (LIQ) measures of banking sector stability have fairly weak negative relationship with FDI inflows but ROA and FDI inflows are positively related. The study then concludes that even though improvement in ROA of the banking sector leads to increase in FDI inflows that are not the case with capital adequacy and liquidity of the banking sector even though they remain an indispensable part of ensuring an efficient, effective, and robust banking sector. The study therefore recommends that policy makers and key stakeholders develop and implement necessary measures to continually improve the ROA of the sector since banks play a critical role of investment and international transfer transactions for foreign investors. Also, re policy makers should take steps to strengthen the capacity of the sector with regards to its capital adequacy and liquidity indicators since they are indispensable elements in ensuring efficient and robust banking sector which is a major concern for foreign investors.
A thesis submitted to department of accounting and finance, Kwame Nkrumah university of science and technology, Kumasi In partial fulfillment of the requirement for the degree of master of science (accounting and finance option) school of business college of humanities and social sciences