Foreign Portfolio Investment Inflows Research Articles

Moderating the Role of Trade Openness on Foreign Portfolio Investment and Economic Growth among East Africa Community Countries

Purpose: This study investigates the impact of foreign portfolio investment (FPI) on economic growth in East Africa using panel data for Kenya, Uganda, Tanzania, Rwanda, and Burundi from 1974-2022. Methodology: The analysis employs a panel vector error correction model to estimate the short and long-run effects of FPI on growth. The study relied on secondary data sources for the period 1974-2022 with an annual frequency, implying 49 years of data. Data on foreign investment variables and macroeconomic control variables were sourced from the World Bank database, National Statistical Bureaus, Central Banks, and Stock Exchanges of the respective countries. Findings: The results indicate that FPI significantly positively impacts economic growth in East Africa. A 1% increase in FPI inflows as a share of Gross Domestic Product (GDP) boosts annual real GDP growth by approximately 10.7% in the long run. The findings are robust to the inclusion of moderating variables like trade openness. Unique Contribution to Theory, Practice and Policy: The empirical analysis aimed to validate the Modern Portfolio Theory by examining if greater foreign portfolio investment flows contributed positively to economic growth in the East African region. The results lend support to policy efforts in East Africa to attract greater FPI through capital market reforms, regional integration, and macroeconomic stability. However, further developing financial markets and enhancing absorptive capacity is essential to leverage FPI more effectively for sustainable growth financing.

What explains foreign portfolio investment inflows to BRICS countries?

Large and volatile foreign portfolio investment (FPI) inflows raise financial instability concerns and create several macroeconomic challenges for developing countries. Identifying the factors driving FPI inflows is therefore essential for formulating appropriate policies to manage these inflows efficiently. This study uses a GM-FMOLS panel cointegration approach to examine and identify such factors for BRICS countries, the leading recipients of FPI inflows among all developing countries. The study finds that the 10-year US Treasury bond yield exerts a significant negative influence on FPI inflows. These bonds provide risk-free long-term returns to portfolio investors; hence, a rise in the yield on such bonds prompts them to readjust their portfolios away from assets in developing countries to US Treasuries, leading to a decline in FPI inflows. The study further finds that a thriving domestic stock market, a higher interest rate differential, an appreciating domestic currency, an improvement in the recipient country’s creditworthiness, and a greater degree of trade openness are conducive to FPI inflows. However, a rising consumer price index, higher foreign output growth, and greater global financial volatility discourage these inflows.

Foreign Investment Flows and Stock Market Performance in Nigeria

This study looks at how foreign investment flows affected Nigeria’s stock market performance from 1994 to 2023. The paper utilised an ex-post facto research approach, and the Central Bank of Nigeria (CBN) bulletin, 2023, offered the data for analysis. Market capitalisation (MCAP) was the dependent variable in the study, and the independent variables used to measure foreign investment flows were foreign direct investment inflows (FDINF), outflows (FDIOUF), inflows from foreign portfolio investments (FPINF), and outflows from foreign portfolio investments (FPIOUT). The study tested the proposed hypotheses using the Ordinary Least Squares estimation approach. In order to determine the dependent variable, market capitalisation, the research examined the effects of four independent variables: FPI inflow, FDI inflows, and FPI outflows. The results show that the influx of FDI has little effect on market capitalisation. Outflows of FDI have a big effect on market capitalisation. Inflows of foreign portfolio investments have little effect on market capitalisation. Outflows from foreign portfolio investments dramatically increase the capitalisation of the stock market. As per the r2, changes in foreign investment variables in Nigeria may account for around 59% of the variations in stock market performance within the Nigerian economy. According to the study’s findings, foreign investment flows significantly affect Nigeria’s market capitalisation. Suggestions include promoting foreign direct investment inflows continuously, encouraging domestic companies to invest overseas, improving market transparency to draw in foreign portfolio investment inflows, and cautiously promoting outward investments to avoid excessive capital outflows.

Connecting Cross‐Border Market Participants: The Intermediary Role of International Analysts in Global Capital Markets

AbstractAlthough the analyst profession has rapidly expanded internationally, very few studies have examined the distinct role of international analysts in the global economy. Motivated to address this need, we examine the role of international analysts as key intermediaries connecting local firms with foreign investors. Specifically, we investigate whether and under what circumstances the international analyst community in a host country influences foreign equity investment in the country. Our analyses of foreign portfolio investment inflows in 57 countries from 1987 to 2007 demonstrate that the international analyst community plays an essential role in facilitating cross‐border equity investment by mitigating foreign investors' information challenges. We also find that the extent of such influence is further affected by the heterogeneity of the host country's information environment and by that of the international analyst community. These findings extend the extant knowledge of analysts, information intermediaries, cross‐border capital investment, and global professions.

The Nexus of Terrorism, Electricity Load Shedding, Political Instability and FPI: An Empirical Evidence of Pakistan

The term foreign portfolio investment (FPI) refers buying the money market instruments, bonds or shares in an overseas country for a shorter time frame. The FPI inflows are critical cash flows for Pakistan due to present uncertain economic and political environment. Due to the unstable political environment, electricity load shedding and terrorism; the market risk has increased significantly, therefore, the overseas investors are hesitant to invest for a longer time frame currently, but the government can attract them through FPI. This research aimed to determine the association of terrorism, political instability and electricity load shedding with FPI from 1991 to 2021 through ARDL and ECM models. The findings of the ARDL and ECM Models have shown that short run and long run co-integration does exist between the variables. Moreover, electricity load shedding is affecting portfolio investment during short run as well as long run time frame, whereas, the variable of political instability is affecting portfolio investment in short run only. Furthermore, the variable of terrorism is not affecting portfolio investment in long run or short run.

Sector Specific Determinants of Foreign Portfolio Investment Inflows in India: A Panel ARDL Approach

This article investigates the factors that influence foreign portfolio investment (FPI) inflows to various sectors in India from February 2012 to July 2020. We find evidence that in the short-run FPI inflows in India have a significant positive relationship with the index of industrial production (IIP), foreign direct investment (FDI) and market capitalization (MC) while a significant negative relationship with the US dollars exchange rate (DEXR) and real effective exchange rate (REER). The results of the panel autoregressive distributed lag (ARDL) approach show that sectoral FPI inflows to the various sector in India have a significant negative relationship with interest rate differential (IRD), MC and the US DEXR in the long run. However, in the long run, it has a significant positive relationship with international liquidity (IL) and REER. In addition, we observe that for all sectors the interest rate differential boosts FPI inflows in India except for new economy sectors. The policy prescription of the study points toward the creation of a conducive investment climate to encourage foreign portfolio investors.

An Empirical Investigation of Foreign and Domestic Portfolio Investment on Economic Growth in Nigeria

This paper empirically investigated the growth implications of foreign portfolio investment inflows and foreign portfolio investment outflows in Nigeria over the period 1986 to 2018. Secondary data sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin, National Bureau of Statistics (NBS) and World Development Indicator (WDI) was used for examining the relationships among the endogenous variable and exogenous variables included in the model. The study employed Augumented Dickey Fuller (ADF) unit root test, Phillips-Perron (PP) unit root test, Johansen co-integration test, Ordinary Least Square (OLS) multiple regression technique to investigate the relationships among real gross domestic product (RGDP), foreign portfolio investment outflows (FPI), foreign portfolio investment inflows (DPI), exchange rate (EXGR) and inflation rate (INFR). Empirical findings revealed that foreign portfolio investment inflows (DPI) exerted statistically significant positive relationship with economic growth (RGDP) whereas foreign portfolio investment outflows (FPI) exhibited statistically significant negative relationship with economic growth (RGDP) in Nigeria over the studied period. Based on the estimated results, government at all levels in Nigeria should create enabling environment for the attraction of foreign portfolio investment inflows in order to spur economic growth; and monetary authorities in Nigeria should ensure stabilization of capital and money market activities with appropriate policies to sustain internalization and attractiveness to investors. Keywords: Foreign portfolio investment outflows, Domestic portfolio investment inflows, Economic growth, Ordinary Least Square Regression, Nigeria DOI: 10.7176/JESD/13-2-02 Publication date: January 31 st 2022

Effectiveness of controlling foreign portfolio investment inflows using macroeconomic policy instruments and institutional strengthening (case study in Indonesia and Thailand)

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.

The behavior of Sovereign Credit Default Swaps (CDS) spread: evidence from Turkey with the effect of Covid-19 pandemic

This study examines how sovereign CDS spreads of Turkey behave in Covid-19 pandemic times by considering that CDS spreads reflect the riskiness, vulnerability, financial stability, and macroeconomic stability of countries and CDS spreads of most of the emerging countries have increased with the emergence of Covid-19 pandemic. Therefore, the study focuses on the year 2020 which includes before Covid-19 and Covid-19 pandemic times periods. In this context, daily data between 12.06.2019 and 06.16.2020, 6 independent variables, and 6 Covid-19 situations are analyzed by employing Multivariate Adaptive Regression Splines (MARS) method. The findings reveal that (i) influential factors on Turkey's CDS spreads are BIST100 index, VIX index, MSCI Turkey index, and USD/TL foreign exchange rates for the period which is before Covid-19 pandemic times; (ii) MSCI emerging market index, number of new deaths from Covid-19, USD/TL foreign exchange rates, weighted average cost of funds, number of new cases from Covid-19, and VIX index have effect on Turkey's CDS spreads in Covid-19 pandemic times, respectively; (iii) on the other hand, number of cumulative cases, number of cumulative deaths, and measures do not have effect on Turkey's CDS spreads in any period. Taking precautions to decrease negative effects on Turkey's CDS spreads by considering the importance of deaths number from Covid-19 pandemic is very important. Hence, Turkey could stimulate foreign portfolio investment inflows with decreasing CDS spreads.

The Behavior of Sovereign Credit Default Swaps (CDS) Spread: Evidence from Turkey with the Effect of COVID-19 Pandemic

This study examines how sovereign CDS spreads of Turkey behave in COVID-19 pandemic times by considering that CDS spreads reflect the riskiness, vulnerability, financial stability, and macroeconomic stability of countries and CDS spreads of most of the emerging countries have increased with the emergence of COVID-19 pandemic. Therefore, the study focuses on the year 2020 which includes before COVID-19 and COVID-19 pandemic times periods. In this context, daily data between 12.06.2019 and 06.16.2020, 6 independent variables, and 6 COVID-19 situations are analyzed by employing Multivariate Adaptive Regression Splines (MARS) method. The findings reveal that (i) influential factors on Turkey’s CDS spreads are BIST100 index, VIX index, MSCI Turkey index, and USD/TL foreign exchange rates for the period which is before COVID-19 pandemic times; (ii) MSCI emerging market index, number of new deaths from COVID-19, USD/TL foreign exchange rates, weighted average cost of funds, number of new cases from Covid-19, and VIX index have effect on Turkey’s CDS spreads in COVID-19 pandemic times, respectively; (iii) on the other hand, number of cumulative cases, number of cumulative deaths, and measures do not have effect on Turkey’s CDS spreads in any period. Taking precautions to decrease negative effects on Turkey’s CDS spreads by considering the importance of deaths number from COVID-19 pandemic is very important. Hence, Turkey could stimulate foreign portfolio investment inflows with decreasing CDS spreads.

Foreign Portfolio Investment And Macroeconomic Factors In India

Foreign Portfolio Investment (FPI) is a part of worldwide capital flows comprising of put out of monetary assets such as currency, supply or bonds across global borders in wish for earnings. FPI is a sole entity, which either boosts or impedes Indian economy and savings approach with each of momentary waft. For the period of behind 1980s and near the beginning 1990s portfolio savings emerged as a most essential type of resources inflow to growing countries. The consequence of portfolio savings to budding countries has arrived downward once the East Asian crisis of 1997. On the additional, most other emergent countries, India is at a standstill more reliant in the lead of Foreign Portfolio Investment (FPI) than Foreign Direct Investment (FDI) as a resource of foreign investment. Foreign Portfolio Investment inflows and outflows have a direct impact on Indian economy. One of the majority imperative features of the expansion of Indian economy in the last twenty years has been the mounting participation of FPI. Portfolio investment being an immediate verity it displays the Indian economy influence instantly. The aim of this revise is to check the relationship between Foreign Portfolio Investment (FPI) and select macroeconomic Indicators in India.

Foreign Portfolio Equity Investment and the Performance of the Nigerian Stock Market: A Sectoral Distribution Analysis

Most developing countries, such as Nigeria, have always been challenged by saving-investment gap, while many of them have consistently harnessed the Foreign Portfolio Investment (FPI) inflows to bridge the gap. In spite of the increased inflow of this type of investment to the Nigerian economy, its influence on stock market performance has been less consensual while such investment is also vulnerable to economic shocks. Therefore, this study examines the effect of foreign portfolio equity investment on stock market performance in Nigeria. The study employed ex-post facto research method using monthly time series data from 2007 to 2017. Using Kruskal-Wallis non-parametric test and the Autoregressive Distributed Lag (ARDL) model, the results reveal that there exists a significant difference in the sectoral distribution of FPI inflows to the Nigerian economy. It also finds that foreign portfolio equity investment has a significant positive influence on the Nigerian stock market performance at 5% level (t-stat= 6.8913, P= 0.0000<0.05; R2 = 0.77). The study concludes that foreign portfolio equity investment significantly predict stock market performance in Nigeria, and therefore recommends that the regulatory authorities should deepen the equity stocks of the market and encourage more firms to get listed on the Nigerian Stock Exchange with a view to channelling more investments into the economy thereby fast-tracking industrialisation and economic development.

Corruption’s Impact on Liquidity, Investment Flows, and Cost of Capital

Corruption decreases liquidity available to institutional traders and discourages foreign portfolio investment inflows into a country. Corruption also increases corporations’ cost of equity capital. The effects of corruption on foreign investment and the cost of equity capital are nonlinear and reverse J-shaped, with intermediate levels of corruption yielding the most negative effects. Highly transparent nations, where a “level playing field” exists between foreign and local investors due to lack of information asymmetries related to corruption, attract the most investment flows. However, at the margin, very corrupt countries attract more flows than moderately corrupt countries because a “perverse level playing field” in the former countries may put foreigners and locals on an even footing in terms of resolving asymmetric information problems.

FDI and FPI Determinants in Developing African Countries

We examine drivers of foreign direct investment (FDI) and foreign portfolio investment (FPI) in nine selected African economies, during the period 1980 to 2014, with particular interest in the role of financial market development. We set out to explore the drivers of FDI and FPI in selected African countries, respectively. We employ the dynamic GMM methodology to assess the motivators of inward foreign flows. The results show that FDI inflows are generally dependent on past inflows of FDI, low inflation, infrastructural development, and real GDP growth rate; while stock market capitalisation, commercial bank assets gauged against commercial and central bank assets as well as domestic credit to the private sector by banks intermediate for financial market development. On the other hand, we find that FPI inflows are attracted to foreign destinations due to previous FPI inflows, the real exchange rate, inflation rates and the presence of developed infrastructure. Further, developed financial markets, as proxied by stock market capitalisation, were found to significantly and positively influence inward FPI flows, while a closed financial account and low interest rate discouraged FPI. The significant contribution of this paper is that its findings empirically confirm FDI and FPI theory, as postulated in Dunning’s eclectic paradigm insofar as the main “location” variables that enhance host country attractiveness are concerned, specifically in the African context. In light of these findings, we recommend that policy makers strengthen their domestic markets, complemented by appropriate regulations and institutions to attract foreign investment flows, while reducing their dependency on international aid and loans.

FDI and FPI Determinants in Developing African Countries

We examine drivers of foreign direct investment (FDI) and foreign portfolio investment (FPI) in nine selected African economies, during the period 1980 to 2014, with particular interest in the role of financial market development. We set out to explore the drivers of FDI and FPI in selected African countries, respectively. We employ the dynamic GMM methodology to assess the motivators of inward foreign flows. The results show that FDI inflows are generally dependent on past inflows of FDI, low inflation, infrastructural development, and real GDP growth rate; while stock market capitalisation, commercial bank assets gauged against commercial and central bank assets as well as domestic credit to the private sector by banks intermediate for financial market development. On the other hand, we find that FPI inflows are attracted to foreign destinations due to previous FPI inflows, the real exchange rate, inflation rates and the presence of developed infrastructure. Further, developed financial markets, as proxied by stock market capitalisation, were found to significantly and positively influence inward FPI flows, while a closed financial account and low interest rate discouraged FPI. The significant contribution of this paper is that its findings empirically confirm FDI and FPI theory, as postulated in Dunning’s eclectic paradigm insofar as the main “location” variables that enhance host country attractiveness are concerned, specifically in the African context. In light of these findings, we recommend that policy makers strengthen their domestic markets, complemented by appropriate regulations and institutions to attract foreign investment flows, while reducing their dependency on international aid and loans.

The Differential Impact of Public and Private Governance Institutions on the Different Modes of Foreign Investment

This paper examines the respective impacts of public and private governance institutions on foreign direct and foreign portfolio investment inflows. We present two hypotheses: (1) there is a strong correlation between the quality of a country’s public governance institutions and the amount of foreign direct investment (FDI) received while the quality of its private governance institutions has no further discernible impact on this correlation; (2) there is a strong correlation between the quality of a country’s public governance institutions and the amount of foreign portfolio investment (FPI) received while the quality of its private governance institutions has a further positive impact on this correlation. Our findings, which are based on panel data analysis, show both hypotheses to be valid.

Impact of External and Internal Crisis on Foreign Portfolio Inflows: The Chinese and Indian Experience

This study examines the relationship between external and internal crisis (EIC) and Foreign Portfolio Investment (FPI) net inflows in China and India. We have applied Binary Choice Model taking the EIC as a dummy variable. GDP growth is an independent variable in our model that indicates the combined performance of economic sectors. The results suggest that EIC exert a significant impact on the FPI net inflows, but the nature of internal issues is different for both countries. We find a little association between GDP growth and net FPI inflows.

Foreign capital inflows and economic growth in developed and emerging economies: A comparative analysis

This paper attempts to test the impact of foreign capital inflow; foreign direct investment (FDI) and foreign portfolio investment (FPI)) on economic growth in developed and emerging economies. It also explores whether this inflow generate synergies in boosting economic growth. A cross-sectional time series growth regression was used for 21 developed and 19 emerging economies sample from 1980 to 2012. The Generalized-Method of Moments (GMM) estimators developed for dynamic models of panel data were used to avoid spurious conclusions and to add robustness and inferences correction to our results, and to deal with the econometric problem of heteroskedastic error of unknown functional form. Analysis revealed mixed results for the sample. For the initial FDI and FPI impact on growth, FDI poses a positive and significant influence, while FPI reveals a negative and significant influence in both samples. In addition, the results on the population proxy support the classical model where higher growth rate of population would initiates economic progress, while the results for the saving growth proxy support the saving-led growth phenomenon; where higher saving rate would accelerate economic growth. It was also found that the Market Capitalization (MC) proxy was positively correlated with economic growth in both samples, while the results of the stock trading proxy indicate that private capital inflows had a positive effect on growth only for the developed economies. The FPI results indicated that the presence of FPI inflows may not be a precondition to produce a positive spillover effect in both sample economies. Interestingly, we observed that the interactions between FPI and the Market Capitalization (MC), Stock Trading, and growth have provided evidence that equity markets advancements do have positive contributions toward attracting more capital inwards to the host country. Analysis also showed that FDI inflows augment domestic resources of most economies, and hence boosting economic growth. As policy implication, governments should be aware that market liberalization polices would have a different influence on inward net capital based on the composition of the capital inflows desired and the level of economic development, reflecting the necessity of capturing a targeted financial market threshold in order to stimulate capital control to attract FDI and FPI. In emerging economies, the interaction term (FPI*MC) implies that catching a threshold of equity market development would have a positive impact on higher levels of capital inflows, hence countries with advanced equity markets tend to gain more welfare from FPI capital inflows.

Asymmetric Effects of Global Liquidity Expansion on Foreign Portfolio Inflows, Exchange Rates, and Stock Prices

Asymmetric Effects of Global Liquidity Expansion on Foreign Portfolio Inflows, Exchange Rates, and Stock Prices-International Monetary Transmission Mechanism, Global Liquidity, Foreign Portfolio Investment Inflows, Quantitative Easing

Modelling the impact of oil prices on Vietnam’s stock prices

The goal of this paper is to model the impact of oil prices on Vietnam’s stock prices. We use daily data for the period 2000–2008 and include the nominal exchange rate as an additional determinant of stock prices. We find that stock prices, oil prices and nominal exchange rates are cointegrated, and oil prices have a positive and statistically significant impact on stock prices. This result is inconsistent with theoretical expectations. The growth of the Vietnamese stock market was accompanied by rising oil prices. However, the boom of the stock market was marked by increasing foreign portfolio investment inflows which are estimated to have doubled from US$0.9 billion in 2005 to US$1.9 billion in 2006. There was also a change in preferences from holding foreign currencies and domestic bank deposits to stocks local market participants, and there was a rise in leveraged investment in stock as well as investments on behalf of relatives living abroad. It seems that the impact of these internal and domestic factors were more dominant than the oil price rise on the Vietnamese stock market.