VECM APPROACH OF THE RELATIONSHIP BETWEEN BANKING SECTOR ACTIVITY AND FDI: EVIDENCE FROM REPUBLIC OF NORTH MACEDONIA
Keywords:
FDI, banking sector activity, co-integration, VECMAbstract
Free foreign direct investment is of great importance for economic growth and the development of emerging economies. Namely, foreign direct investments do not allow entry into unemployment, transfer of modern technology and knowledge, unless you want to increase competition in the domestic market, you can ask for encouragement of innovation, how to show productive and stable growth in developing countries. The rapid development of information and communication technology, as well as the impact on traffic infrastructure is functional if it needs to be adjusted to active foreign investment.
The banking sector, on the other hand, occupies an important place within the financial system in the economic development. Thus, in the Republic of North Macedonia, the banking institutions participate with about 84% in the total assets of the financial system. Hence, the liquidity and reliability of banking institutions are crucial in terms of maintaining the stability of the financial sector.
The changes that have affected the financial sector in the last few decades, as a result of the impact on deregulation, competition, consolidation process, globalization, technological changes has made possible the drastic transformation of banking institutions. Banks are responding to such changes by expanding their service offer, not only in the country but also abroad. Thus, the activists of modern banks are not limited to traditional banking activities, such as adjusting deposits and issuing loans, unless many other non-banking services are required. If modern banks have more compared to universal financial institutions, clean transformation should be aimed at: efficient implementation, optimization of the capital structure, strengthening measures due to weakness and so on.
Given the preferred prospects for knowledge of foreign security investments for use in the economy, but also the role of the banking system in the economy, the main purpose of this doctoral dissertation will be to examine the factors in the banking sector in Republic of North Macedonia and foreign direct investments, for the period 2000 until 2018. Namely, the causal relationship is related to investments in foreign investments (FDI) and banking sector in Republic of North Macedonia, and on the other hand there are many choices and theoretical studies on mutual international investments and the economy. Therefore, in this doctoral dissertation I will try to determine whether total deposit, total loans and other activities of the banking sector and its performance have impact on the Foreign Direct investments. In order to achieve the required objectives, this study will use the Vector Error Correction Model (VECM).
At the end of this dissertation, several measures and recommendations regarding the health efficiency of the banking sector will be given, through the implementation of operational innovations, which is essential for an attractive foreign investment.
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