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On the Drivers of FDI and Portfolio Investment: A Simultaneous Equations Approach

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  • Tidiane Kinda

Abstract

This paper assesses the drivers of Foreign Direct Investment (FDI) and portfolio investment using simultaneous equations, which control for the correlation between the two components of private capital flows. The results show that in addition to infrastructure and financial development, capital control and economic growth significantly explain private capital flows in developing countries. The paper also highlights that the impact of financial development on portfolio investment is nonlinear. Indeed, lax monetary policy and excessive credit provision could weaken the financial system and significantly reduce portfolio investment flows in the long run.

Suggested Citation

  • Tidiane Kinda, 2012. "On the Drivers of FDI and Portfolio Investment: A Simultaneous Equations Approach," International Economic Journal, Taylor & Francis Journals, vol. 26(1), pages 1-22, November.
  • Handle: RePEc:taf:intecj:v:26:y:2012:i:1:p:1-22
    DOI: 10.1080/10168737.2010.538428
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    References listed on IDEAS

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    1. Ricardo Hausmann & Eduardo Fernández-Arias, 2000. "Foreign Direct Investment: Good Cholesterol?," IDB Publications (Working Papers) 1319, Inter-American Development Bank.
    2. Yongfu Huang, 2011. "Private investment and financial development in a globalized world," Empirical Economics, Springer, vol. 41(1), pages 43-56, August.
    3. Rodrigo O. Valdes & Leonardo Hernández & Pamela Melado, 2001. "Determinants of Private Capital Flows in the 1970's and 1990's; Is there Evidence of Contagion?," IMF Working Papers 01/64, International Monetary Fund.
    4. Ricardo Hausmann & Eduardo Fernández-Arias, 2000. "Foreign Direct Investment: Good Cholesterol?," Research Department Publications 4203, Inter-American Development Bank, Research Department.
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    Cited by:

    1. KARGI, Bilal, 2014. "Portfolio in Turkish Economy, and A Long Termed Relation Between Foreign Direct Investments and The Growth, and The Structural Breakage Analysis (1980-2012)," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 70-81.
    2. International Monetary Fund, 2012. "Republic of Moldova; Selected Issues," IMF Staff Country Reports 12/289, International Monetary Fund.

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