Foreign Direct Investment, Foreign Portfolio Investment and House Prices: The Case of European Union Countries

Abstract

In the literature, there are few studies analyzing the impacts of foreign direct investment and foreign portfolio investments on house prices. We employed quarterly data for 20 EU countries over the 2007-2013 period in order to examine the separate impacts of foreign direct investment and portfolio investment on the house prices for the period of post-financial crisis. The results of Panel Vector Auto Regression indicate that foreign direct investment negatively affects house prices, and foreign portfolio investment positively affects house prices. Also, the results indicate that increase in house prices lead to decrease both foreign direct investment and foreign portfolio investment. Moreover, results also indicate that foreign direct investment and portfolio investments are substitutes rather than complements.