Foreign Portfolio Investments and Economic Freedom: Empirical Investigation of the World Countries Grouping Based on the Level of Income

Abstract

This study investigates the effect of the economic freedom on the foreign portfolio investments in various countries of the World classified based on the level of income. The study used a sample of 184 countries for a period of 2001 to 2017, the full sample is further divided based on the level of income into a subsample of 74 high-income countries, 52 upper-middle-income countries, 32 lower-middle-income countries, and 26 lower income countries. The study estimated panel data regression models and found that a fixed effect is prevailing in all models. The regression results show that economic freedom has a positive effect on foreign portfolio investments. Furthermore, the results of the subsample also shows that economic freedom has a significant positive effect on foreign equity and foreign debts portfolio investments in high income, upper middle income, and lower-middle-income countries, however, there exists an insignificant effect of the economic freedom on the foreign equity and debts portfolio investments in the lower income countries.