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Foreign portfolio investment, foreign bank lending, and economic growth

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  • J. Benson Durham

Abstract

In contrast to the empirical literature's focus on foreign direct investment (FDI), this study examines the effects of foreign portfolio investment (FPI) and "other" foreign investment (OFI) on economic growth using data on 88 countries from 1977 through 2000. Most measures suggest that FPI has no effect, and some results indicate that OFI has a negative impact on growth that is somewhat mitigated by initial financial and/or legal development. However, these results are questionable due to possible simultaneity bias. The empirical analyses also examine whether non-FDI foreign investment affects growth indirectly. FPI does not correlate positively with macroeconomic volatility, but the results indicate that the negative indirect effect of OFI through macroeconomic volatility comprises a substantial portion of the gross negative effect of OFI on growth.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 757.

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Date of creation: 2003
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Handle: RePEc:fip:fedgif:757

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Keywords: Investments; Foreign ; International finance;

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Cited by:
  1. Tokunbo S. OSINUBI & Lloyd A. AMAGHIONYEODIWE, 2010. "Foreign Private Investment And Economic Growth In Nigeria," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 10(2).
  2. Reece, Christopher & Sam, Abdoul G., 2012. "Impact of Pension Privatization on Foreign Direct Investment," World Development, Elsevier, vol. 40(2), pages 291-302.
  3. Philip R. Lane, 2003. "The Macroeconomics of International Financial Trade," Trinity Economics Papers 200314, Trinity College Dublin, Department of Economics.

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