The impact of foreign direct investment inflows on nonperforming loans: the case of UAE

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The banking sector is at risk of worsening loan quality, which is a major threat to the financial system’s stability. The impact of foreign direct investment (FDI) inflows on nonperforming loans (NPLs) in the United Arab Emirates (UAE) is empirically investigated in this study. The data from 2008 to 2017 are collected and analyzed through the ordinary least squares (OLS) technique. The findings reveal that FDI inflows reduced the size of NPLs during the economic crisis. Also, the combined effect of higher FDI inflows and bank efficiency reduced the size of NPLs for banks, while the combined effect of FDI inflows and better institutions, such as strong regulatory quality, did not reduce the size of NPLs but rather increased the size of NPLs. The findings have implications and contribute to the literature to establish a relationship between FDI inflows and NPLs by examining the relationship between FDI inflows and NPLs in the context of banks in the UAE.

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    • Table 1. Definitions of variables and expected signs
    • Table 2. Descriptive statistics for the NPL determinants
    • Table 3. Correlation table for NPL determinants
    • Table 4. Pearson correlation for institutional variables
    • Table 5. Main results
    • Table 6. Joint-effect of FDI inflows and country governance factors on NPLs
    • Table 7. Joint-effect of FDI inflows and banking sector characteristics on NPLs
    • Table 8. Main results using the FDI per capita as the dependent variable
    • Table 9. Joint-effect of FDI per capita and country governance factors on NPLs
    • Table 10. Joint-effect of FDI per capita and banking sector characteristics on NPLs
    • Data curation
      Peterson K. Ozili
    • Formal Analysis
      Peterson K. Ozili, Asma Salman
    • Funding acquisition
      Peterson K. Ozili, Asma Salman, Qaisar Ali
    • Software
      Peterson K. Ozili, Qaisar Ali
    • Supervision
      Peterson K. Ozili, Asma Salman
    • Writing – original draft
      Peterson K. Ozili, Asma Salman, Qaisar Ali
    • Writing – review & editing
      Peterson K. Ozili, Asma Salman, Qaisar Ali
    • Conceptualization
      Asma Salman, Qaisar Ali
    • Project administration
      Asma Salman
    • Methodology
      Qaisar Ali