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Co-movement of Foreign Direct and Portfolio Investments in Central and Eastern Europe

Author

Listed:
  • Yaman O. Erzurumlu

    (Department of Engineering Management, Bahcesehir University, Besiktas, Istanbul 34349, Turkey)

  • Giray Gozgor

    (Department of Economics & Finance, Dogus University Kadikoy, Istanbul 34722, Turkey)

Abstract

This paper empirically examines short-andlong-run relationships between foreign direct investments (FDI) and volatility of foreign portfolio investments (FPI) in 12 Central and Eastern European (CEE) countries. We use the Generalized Autoregressive Conditional Heteroskedasticity models to calculate volatility of the FPIs. We utilize the second generation panel unit root test, panel - Wald causality test procedure and panel cointegration analysis allowing for structural breaks, and cross-sectional dependence. The results strongly suggest that a decrease in FPI volatility is followedby an increase in FDI in the long- run, and this indicates economies that advance in capital liberalization benefit from increases in FDI. However, the relationship in opposite direction in the long-run is valid in only half of the countries studied. In short-run, we observe that the former relationshipis valid only in Turkey, the Czech Republic, and Lithuania; where the latter is valid only in Latvia.

Suggested Citation

  • Yaman O. Erzurumlu & Giray Gozgor, 2014. "Co-movement of Foreign Direct and Portfolio Investments in Central and Eastern Europe," International Journal of Economics and Financial Issues, Econjournals, vol. 4(3), pages 457-464.
    • Handle: RePEc:eco:journ1:2014-03-2
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    References listed on IDEAS

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    More about this item

    Keywords

    Central and Eastern European economies; foreign direct investment; foreign portfolio investment; volatility models; panel data estimation techniques;
    All these keywords.

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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