Portfolio investment outflow and the complementary role of direct investment

Noman, Abdullah M.; Rahman, Mohammad Nakibur; Naka, Atsuyuki

doi:10.1108/jfep-03-2014-0024

Cited by 11 publications

(11 citation statements)

References 50 publications

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“…This finding was also in line with previous results from the FDI mean group output and the subsequent conclusion that, given the state of institutional quality, the two investment inflows could have been substitutes in this sample of emerging markets. These results contradict those of Noman et al (2015), who found a positive link between FDI and FPI, with FPI having a greater impact on FDI in a sample of 45 developed and developing countries. Noman et al (2015) did not take into account the effect of institutions, however, but only that of variables such as differentials in market openness, exchange rates and inflation rates.…”

Section: Cointegration and Error Correction Model Results With Fpi As The Dependent Variable-dynamic Fixed Effectscontrasting

confidence: 99%

“…These results contradict those of Noman et al (2015), who found a positive link between FDI and FPI, with FPI having a greater impact on FDI in a sample of 45 developed and developing countries. Noman et al (2015) did not take into account the effect of institutions, however, but only that of variables such as differentials in market openness, exchange rates and inflation rates.…”

Section: Cointegration and Error Correction Model Results With Fpi As The Dependent Variable-dynamic Fixed Effectscontrasting

confidence: 99%

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Analysis of International Capital Inflows and Institutional Quality in Emerging Markets

Nxumalo

Makoni

2021

Economies

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This study investigates the cointegrating and causality relationships between foreign direct investment (FDI), foreign portfolio investment (FPI) and institutional quality in a sample of 12 emerging market economies for the period from 2007 to 2017. A composite index for institutional quality composed of the Worldwide Governance Indicators was constructed using the Principal Components Analysis (PCA) method. The panel autoregressive distributed lag (ARDL) model and the error correction model (ECM) were applied to assess the cointegrating and causal relationships between the key variables. In addition to finding significant cointegrating relationships between institutional quality and the foreign capital inflows (FDI and FPI), the results confirmed unidirectional causality from FDI and FPI to institutional quality in the long run. The results further suggested that the long-run relationship between the two foreign capital inflows was more of a trade-off nature, dependent upon the dynamics of the institutional environment in the host economy. The recommendations suggested include that emerging markets should continue to open their economies in pursuit of capital inflows, which will reciprocally strengthen their domestic institutional environment. Strengthening institutions could curtail the persistence of institutional weaknesses and insulate emerging economies from the adverse effects of volatile capital flows and, over the long run, enhance capital inflows.

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Section: Cointegration and Error Correction Model Results With Fpi As The Dependent Variable-dynamic Fixed Effectscontrasting

confidence: 99%

Section: Cointegration and Error Correction Model Results With Fpi As The Dependent Variable-dynamic Fixed Effectscontrasting

confidence: 99%

Analysis of International Capital Inflows and Institutional Quality in Emerging Markets

Nxumalo

Makoni

2021

Economies

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“…Moreover, the FDI results revealed a statistically significant but negative association between FPI inflows and FDI inflows. Although this result contrasted the complementary and positive association found by Noman, Rahman and Naka (2015); it, however, corroborated the findings of Humanicki, Kelm and Olszewski (2017) of a trade-off or substitutability relationship between FDI and FPI inflows, in the case of Poland.…”

Section: Results and Discussion Of Findingssupporting

confidence: 86%

Determinants of Foreign Capital Inflows in Emerging Markets: The Role of Institutional Quality

Nxumalo

Makoni

2021

JAFEE

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Purpose: The purpose of the study was to examine the key determinants of foreign direct investment (FDI) and foreign portfolio investment (FPI) in emerging market economies, with greater emphasis placed on the impact of institutional quality. Design/Methodology/Approach: The study applied a panel data system generalised method of moments (GMM) model using annual data spanning the period 2007 to 2017, in respect of 12 emerging market economies. To measure institutional quality, the study adopted the Worldwide Governance Indicators, and constructed a composite index for institutional quality using the Principal Components Analysis (PCA) method. Findings: The results revealed that FDI in the selected emerging markets was attracted by institutional quality and economic growth. Capital account openness, institutional quality and economic growth were positive determinants of FPI. However, stock market development stood out as the key determinant factor for foreign capital inflows. Implications/Originality/Value: The implications of these findings are that, in their pursuit of foreign capital inflows, these emerging markets should continue to liberalise their economies and develop their financial markets. Importantly, such developments must be coupled with the strengthening of the formal governance institutions. Robust institutions would not only curb institutional weaknesses that deter international capital inflows, but would also insulate emerging markets from unfavourable effects of volatile capital flows.

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“…Generally speaking, the growth rates of the developed countries are slower than the emerging ones, which attract more amounts of flows from overseas to take advantage of this differential. Nevertheless, given the fact that economies follow different cycle, investors prefer to invest in the less risky financial markets (Noman et al, 2015).…”

Section: Theoretical Backgroundmentioning

confidence: 99%

Causality between Foreign Portfolio Inflows and Economic Growth: Evidence from China and India

Ahmad¹,

Yang²,

Draz³

2015

IJEF

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The objective of this paper is to examine the causal relationship of foreign portfolio inflows and economic growth for two Asian economies, i.e. China and India. We have used Granger causality test for both countries' data ranging from 2001 to 2013 and concur with the findings of Durham (2003) and Duasa and Kassim (2009), i.e. there is no direct causality between foreign portfolio inflows and economic growth. Our results also suggest an indirect relationship between foreign portfolio inflows and economic growth of China and India.

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Portfolio investment outflow and the complementary role of direct investment

Cited by 11 publications

References 50 publications

Analysis of International Capital Inflows and Institutional Quality in Emerging Markets

Analysis of International Capital Inflows and Institutional Quality in Emerging Markets

Determinants of Foreign Capital Inflows in Emerging Markets: The Role of Institutional Quality

Causality between Foreign Portfolio Inflows and Economic Growth: Evidence from China and India

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