Abstract
This study analyzed the influence of macroeconomic and institutional variables on foreign portfolio investment inflows in two ASEAN countries, Namely Indonesia and Thailand, in 2005 – 2019. The analytical tools used in this research are Panel Vector Error Correction Model (PVECM) and Panel Ordinary Least Square (POLS). The estimation results show that the macroeconomic variables that are proxied using inflation and openness economy and institutional variables that are proxied using the variable level of corruption and quality of regulation have a significant effect. In the long term, the inflation rate, the openness economy, and the quality of regulation variables significantly affect foreign portfolio investment. Meanwhile, in a short time, only the inflation rate variable and the openness ratio have a significant effect on foreign portfolio investment. The two analytical tools used found that macroeconomic and institutional variables consistently affect foreign portfolio investment.
Highlights
INTRODUCTIONDeveloped and developing countries have increasingly opened their economic systems since
Developed and developing countries have increasingly opened their economic systems sinceGATT opened international trade liberalization in 1947 (Staffs, 2001; Ayenagbo et al, 2011; Baldwin, 2016; dan DeMarco et al, 2020)
Considering the panel data analysis method is a combination of time series analysis with cross section analysis, the model can be written linearly with the linear equation: FPIt = b0 + b1INFit + b2OPENit + b3CORit + b4REGit + εit Where foreign portfolio investment (FPI) = Foreign portfolio investment, INF = inflation rate, OPEN = economic openness ratio, COR = Corruption, REG = regulatory quality andεit = error term
Summary
Developed and developing countries have increasingly opened their economic systems since. Indonesia has the most elevated GDP position and the lowest (tight) market openness ratio compared to Thailand and some of the top countries in Knoema's net portfolio investment. Anwar's (2016) research results found that interest rates and inflation, the ratio of economic openness (openness) affect the formation of foreign portfolio investment in the ASEAN region. Considering the panel data analysis method is a combination of time series analysis with cross section analysis, the model can be written linearly with the linear equation: FPIt = b0 + b1INFit + b2OPENit + b3CORit + b4REGit + εit Where FPI = Foreign portfolio investment, INF = inflation rate, OPEN = economic openness ratio, COR = Corruption, REG = regulatory quality andεit = error term. Using the net trade formulation, namely exports (X) minus imports (M), it is hoped that the variable can explain the economic openness of international fund flows
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