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Foreign Portfolio Investment In Some Developing Countries: A Study of Determinants and Macroeconomic Impact

Author

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  • R. N. Agarwal

    (Institute of Economic Growth)

Abstract

The present study examines the determinants of foreign portfolio investment (FPI) and its impact on the national economy in six developing Asian countries. Regression results show that inflation rate, real exchange rate, index of economic activity and the share of domestic capital market in the world stock market capitalization are four statistically significant determinants of FPI. The first variable has a negative coefficient while the last three variables possess positive coefficients. Foreign direct investment, total foreign trade and current account deficit variables are found to be statistically insignificant. Regarding the impact of FPI on the national economies, it is found that the index of economic activities and inflation rate show an upward trend. Volatility in portfolio flows has not increased overtime. Ratio of foreign debt and debt-servicing to GDP has declined. But the rule of thumb regarding the issue of sustainability of FPI suggests that India and Indonesia have crossed the upper bounds of permissible debt ratios.

Suggested Citation

  • R. N. Agarwal, 1997. "Foreign Portfolio Investment In Some Developing Countries: A Study of Determinants and Macroeconomic Impact," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 32(2), pages 217-229, July.
    • Handle: RePEc:dse:indecr:v:32:y:1997:i:2:p:217-229
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    Citations

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    Cited by:

    1. Pradeep Agrawal, 2015. "Can Foreign Portfolio Investment Contribute to Post-2015 Development Goals in Asia?," Southern Voice Occasional Paper 26, Southern Voice.
    2. Samson Edo, 2018. "Private capital inflows and stock market interface in sub-Saharan Africa," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 65(4), pages 507-538, December.
    3. April Knill & Bong Soo Lee, 2014. "The Volatility of Foreign Portfolio Investment and the Access to Finance of Small Listed Firms," Review of Development Economics, Wiley Blackwell, vol. 18(3), pages 524-542, August.
    4. Garg, Reetika & Dua, Pami, 2014. "Foreign Portfolio Investment Flows to India: Determinants and Analysis," World Development, Elsevier, vol. 59(C), pages 16-28.
    5. Patricia Lindelwa Makoni, 2020. "Foreign Portfolio Investments, Exchange Rates and Capital Openness: A Panel Data Approach," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(2), pages 100-113.
    6. Liew, Ping-Xin & Lim, Kian-Ping & Goh, Kim-Leng, 2018. "Foreign equity flows: Boon or bane to the liquidity of Malaysian stock market?," The North American Journal of Economics and Finance, Elsevier, vol. 45(C), pages 161-181.
    7. Kamat, Manoj & Kamat, Manasvi, 2007. "Does Financial Growth lead Economic Performance in India? Causality-Cointegration using Unrestricted Vector Error Correction Models," MPRA Paper 6154, University Library of Munich, Germany.
    8. S. Narend & M. Thenmozhi, 2019. "Do Country ETFs Influence Foreign Stock Market Index? Evidence from India ETFs," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 18(1_suppl), pages 59-86, April.
    9. Tamal Datta Chaudhuri & Bidisha Mukhopadhyay & Payal Maskara, 2014. "Estimating Changing Significance of Determinants of FII Flows to India over Different Time Periods in a Vector Autoregressive Framework Using Daily Data," International Journal of Financial Economics, Research Academy of Social Sciences, vol. 2(4), pages 156-168.
    10. Akisik, Orhan, 2020. "The impact of financial development, IFRS, and rule of LAW on foreign investments: A cross-country analysis," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 815-838.
    11. Arintoko & Insukindro, 2017. "Effect of Exchange Rate, Foreign Direct Investment and Portfolio Investment on the Indonesian Economy: A Structural Cointegrating Vector Autoregression Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 7(2), pages 682-691.
    12. Narayan Sethi, 2012. "Inflows and their Macroeconomic Impact in India a VAR Analysis," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 15(45), pages 93-142, December.
    13. Muhammad Mohsin Hakeem & Ken-ichi Suzuki, 2017. "Foreign Portfolio Investment and Economy: The Network Perspective," Papers 1712.10274, arXiv.org.
    14. Ferry Syarifuddin, 2020. "The Dynamics Of Foreign Portfolio Investment And Exchange Rate: An Interconnection Approach In Asean," Working Papers WP/08/2020, Bank Indonesia.
    15. G Shivagami & T Rajendra Prasad, 2021. "Efficacy of Foreign Direct Investment in India - An Evaluation," ComFin Research, Shanlax Journals, vol. 9(2), pages 38-46, April.
    16. Courage Mlambo, 2022. "The impact of international portfolio investment on economic growth: the case of selected African states," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 11(10), pages 151-159, December.
    17. Knill, April M., 2005. "Taking the bad with the good : volatility of foreign portfolio investment and financial constraints of small firms," Policy Research Working Paper Series 3797, The World Bank.
    18. Nicole B. Simpson & Marc Tomljanovich & George S. Georgiev, 2005. "Macroeconomic Fundamentals and Net Portfolio Investment Between Developed Regions," International Finance, Wiley Blackwell, vol. 8(2), pages 303-327, August.
    19. Monica Singhania & Neha Saini, 2018. "Determinants of FPI in Developed and Developing Countries," Global Business Review, International Management Institute, vol. 19(1), pages 187-213, February.
    20. Tricia Mangal & Day-Yang Liu, 2020. "The impact of economic freedom on foreign portfolio investments: The case of the Caricom single market and economy," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 9(2), pages 213-222, March.
    21. Hilary Tinotenda Muguto & Lorraine Rupande & Paul-Francois Muzindutsi, 2019. "Investor sentiment and foreign financial flows: Evidence from South Africa," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 37(2), pages 473-498.

    More about this item

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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