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International Portfolio Inflows to GCC Markets. Are There any General Patterns?

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  • Balli, Faruk
  • Osman, Mohammad
  • Louis, Rosmy J.

Abstract

In this paper, we document the main factors underlying the foreign portfolio inflows to Gulf Corporation Council countries (hereafter GCC) by employing a recently published database of cross-country portfolio holdings by the International Monetary Fund. We find that bilateral factors such as trade volume and debt to GDP ratio between the source and GCC (host) countries play a truly significant role in determining the volume of cross border portfolio inflows to GCC markets. Particularly, there is a strong correlation between trade volume and the volume of portfolio inflows. This connection becomes even stronger over time. Moreover, GCC members’ stable fiscal position (lower debt to GDP ratio) is practically one of the important determinants of the volume of portfolio inflows to GCC markets. Specifically, for the international bond holders, the foremost motivation for investing cross borders is the absence of default risk and the higher return in comparison to other countries. We have also found that the extent of openness in capital account transactions and the income level of source country are additional factors that help to explain the volume of foreign portfolio inflows to GCC members. Last but not least, although there is a remarkable increase in the volume of the international portfolio inflows to GCC countries, there also exists a “GCC bias”, a huge share of the portfolio inflows to GCC markets is coming from the GCC countries. This bias is the notable consequence of the high level financial and economic integration that characterizes the GCC countries as they are heading towards a monetary union. A similar bias occurs in European Union markets as well.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10158.

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Date of creation: 06 Jul 2008
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Handle: RePEc:pra:mprapa:10158

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Keywords: Capital Market Integration; GCC Portfolio Bias; Economic Integration; Bilateral Linkage;

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Citations

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Cited by:
  1. Faruk Balli & Rosmy Louis & Mohammad Osman, 2011. "The patterns of cross-border portfolio investments in the GCC region: do institutional quality and the number of expatriates play a role?," Journal of Economics and Finance, Springer, vol. 35(4), pages 434-455, October.
  2. Marga Peeters, 2010. "The changing pattern of international trade and capital flows of the GCC countries," European Economy - Economic Papers 415, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  3. Balli, Faruk & Basher, Syed Abul & Jean Louis, Rosmy, 2013. "Sectoral equity returns and portfolio diversification opportunities across the GCC region," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 25(C), pages 33-48.
  4. Okawa, Yohei & van Wincoop, Eric, 2012. "Gravity in International Finance," Journal of International Economics, Elsevier, vol. 87(2), pages 205-215.
  5. Jean Louis, Rosmy & Balli, Faruk & Osman, Mohamed, 2010. "On the choice of an anchor for the GCC currency: does the symmetry of shocks extend to both the oil and the non-oil sectors," MPRA Paper 38056, University Library of Munich, Germany.
  6. Peeters, Marga, 2010. "The changing pattern in international trade and capital flows of the Gulf cooperation council countries in comparison with other oil-exporting countries," MPRA Paper 23539, University Library of Munich, Germany.

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