Abstract
The study investigates the pull and push factors as determinants of foreign portfolio investment flows in the emerging market from 1986 to 2018. The study employs autoregressive distributed lag (ARDL) bound cointegration test and ARDL error correction model (ECM). This work is intended to explore the determinants of foreign portfolio investment (FPI) in Nigeria and compare the result explored by Kaur and Dhillon (2010) in India. The result revealed that of all the explanatory variables, only MCAP, DMINT, REER, USGS and USINFR have a positive effect on FPI while GDPGR, USGDPGR, USGS and USINFR are significant. From the result of the analysis, the study agrees with Kaur and Dhillon (2010) that the host country gross domestic product (GDP) growth rates and the United States of America (the U.S.A.) inflation rates are among the significant pull and push factors that determine FPI flows in the long run. Based on these findings, the study recommends that economic policymakers in the host country should be more committed to strengthening its economy by boosting its GDP in order to push foreign investors to the economy since the dwindling in economic growth, low rate of return and rise in inflation rates of the developed countries such as the U.S.A. could push foreign investors to the emerging markets.
Highlights
No economy is sufficient on its own
The result revealed that of all the explanatory variables, only Market capitalization (MCAP), Domestic interest rate (DMINT), REER, US gross savings (USGS) and US inflation rate (USINFR) have a positive effect on foreign portfolio investment (FPI) while GDPGR, US gross domestic product growth rate (USGDPGR), USGS and USINFR are significant
In order to achieve the objectives of the study, the result revealed that of all the explanatory variables, only MCAP, DMINT, REER, USGS and USINFR have a positive effect on FPI while GDPGR, USGDPGR, USGS and USINFR proved significant
Summary
No economy is sufficient on its own. There is a need to complement domestic savings and investment with foreign investment to have a hedge among other countries of the world. A developing economy recognises the importance of foreign capital to supplement domestic resources because most developing countries are characterised by a low level of domestic savings, which has impeded the muchneeded investment for economic development (Owo, 2013). The gap, when financed through foreign savings comes in the form of capital flows. Capital flows are transmitted through foreign direct investment (FDI), foreign portfolio investment (FPI), the drawdown on foreign reserves, foreign loans and credits, etc. The foreign investment when it is on tangible assets is referred to as a direct foreign investment. It is called portfolio investment when it is on shares, bonds, securities, etc. It is called portfolio investment when it is on shares, bonds, securities, etc. (Bakare, 2011)
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