Foreign portfolio investment and nigerian bond market development. The determinants of foreign direct investmentempirical. International finance and macroeconomics, international trade and investment. According to granger causality tests and impulse responses, foreign portfolio investment affects istanbul stock exchange. It is in line with this view that an investigation of the determinants of foreign direct investment. Ozurumba benedict anayochukwu lecturer, department of management technology federal university of technology, p.
In 200809, it was the huge reversal in fii flows that created havoc in the indian financial markets and led to a sharp decline in the total portfolio investment flows to india. The determinants of foreign portfolio investment to indian equity market have been examined in literature, but flows to bond market remain unexplored. Fdi is characterized by handson management style which enables the owner to obtain. Foreign portfolio investment the foreign exchange management act 2000 defines foreign portfolio investment as buying and selling of shares, convertible debentures of indian companies, and units of domestic mutual funds at any of the indian stock exchanges it is the passive holding of securities such as. The study has used the time series data and ordinary.
Foreign portfolio equity investments, financial liberalization, and economic development vihang errunza abstract reform of local capital markets and relaxation of capital controls to attract foreign portfolio investments fpis has become an integral part of development strategy. Given the merits and the demerits associated with portfolio investment, it is important to investigate the factors that drive foreign portfolio investment fpi and its effect on the economic growth of the host economy. Saudi arabia has the largest stock market in the gulf region. The determinants of international portfolio holdings and. Essay number 2 addresses the impact of the emu on the country allocation of finnish investors international portfolio investments. Besides the positive impacts of portfolio investment there.
Determinants of foreign direct investment in kenya. Macroeconomic factors and foreign portfolio investment. Oct 16, 2015 indias fiscal 20 was the lowest in terms of market capitalization in the past five years. They often emphasize the economic ones, while underestimating the others. Foreign portfolio investment is similar, but differs from foreign direct investment. This study investigates the determinants of foreign portfolio investment in jordan using series of data covering the period from 2000 to 2016. Historically, the most attractive destination for foreign direct investment has been manufacturing, followed by wholesale trade, insurance and the financial institutions. This paper examines the foreign exchange fx hedging by firms listed on the alternative investment market aim in the uk to contribute to the empirical debate on the determinants. The perfect market assumes that there exists competition for investment, equal opportunity, and there is equal return on investment across the countries. For measuring volatility in foreign portfolio investment, garch 1,1 is used because shocks are responded quickly by this model.
Zobayer bin amir, tabassum zaman, mohammad afshar ali abstract economic wisdom of investment of economics enumerates that there has been a causal nexus between investment. A decomposition into foreign and domestic investors not only provides insight into foreign portfolio investment decisions but also has policy implications in that a different policy response may be required depending on whether an observed pattern is driven by foreigners or domestic investors. Because of its short term nature, it provides opportunity to investors. Crossborder flows of portfolio investment are by nature more unstable than foreign direct investment fdi. By investing in foreign securities, investors can participate in the growth of other countries, hedge their consumption basket against exchange rate risk, realize diversification effects. Foreign direct investment vs foreign portfolio investment goldstein itay and assaf razin nber working paper no. Recently, it officially opened up to foreign investors in an effort to promote market stability and reduce volatility. An analysis of disaggregated portfolio flows shows that determinants of fiis are similar to aggregate portfolio flows, while adrgdrs are significantly influenced only by domestic equity returns, exchange rate, domestic output growth, and foreign output growth.
This has made the studies to refer to foreign portfolio investment as passive or speculative in nature. Foreign direct investment fdi from the viewpoint of the balance of payments and the international investment position iip share a same conceptual framework given by the. This study is an endeavour to establish the factors that affect the portfolio investment in pakistan. When investigating foreign direct investment, scientists focus on different combinations of factors.
Foreign direct investment fdi and foreign portfolio investment fpi have been long considered as distinct and independent forms of international capital flows, but in the globalized world there are reasons to treat them as interconnected phenomena. Jul 16, 2001 at first sight, the idea of investing internationally seems exciting and full of promise because of the many benefits of international portfolio investment. Openness of a country is generally measured as the proportion of. This study intends to investigate the economic factors which attract the investors to invest in the host country.
Global forum on international investment attracting foreign direct investment for development shanghai, 56 december 2002 foreign portfolio and direct investment complementarity, differences, and integration kimberly evans, international economist, office of international investment, us department of the treasury. Determinants of foreign portfolio investment and its effects on china foreign portfolio investment consists of securities and other capital inflows of assets possibly held by other foreign countries. This paper analyses the determinants of portfolio flows to india for the period october 1995 to october 2011. Because of its short term nature, it provides opportunity to investors to take advantage of. Pdf determinants of foreign portfolio investment and its. Political conflict and foreign portfolio investment. The results reveal that there exists significant relationship between macroeconomic factors and foreign portfolio investment volatility. Foreign direct investment and foreign portfolio investment in. A comparative analysis it is widely recognized that foreign direct investment fdi produces economic benefits to the recipient countries by providing capital, foreign. If you continue browsing the site, you agree to the use of cookies on this website. Professor vojislav maksimovic department of finance this essa y examines the impact of foreign portfolio investment on the financial constraints of small firms.
Clearly, portfolio holdings are not subject to the high sunk costs and the market irreversibility that affect fdi. Foreign direct investment fdi and foreign portfolio investment fpi have been long considered as distinct and independent forms of international capital flows, but in the globalized world. In contrast, there is a significant fluctuation of net investment of foreign investors as seen in table 1. Determinants of foreign portfolio investment in emerging. Yan1 authorized for distribution by tamim bayoumi february 2004. Journal of integrative humanism ghana march, 2014 issn. The determinants and impacts of foreign direct investment msc economics dissertation london metropolitan university delali accolley msc econ supervisor. There have been many studies on the impact of foreign portfolio investment on economic growth and long run. With the help of eviews 7 software, this study used the ordinary least square ols estimation methods to examine the relationship between foreign direct investment. What are the advantages of foreign portfolio investment.
This paper analyzes the mutual relationship between fdi and. The study observed that trade openness and world gdp were the significant determinants. The impact of stock market returns on foreign portfolio. However, because of the multifarious functions of the united states in the world economy the portfolio adjustment theory is not quite adequate in explaining the foreign portfolio investments. Discussed are early studies of determinants of fdi 1 as well as determinants of fdi. Determinants of foreign portfolio flows to indian debt. Joe pearlman some theories on the determinants and impac ts of foreign direc t investment fdi are presented and c ritic ally disc ussed. In direct investment, investors invest in a firm with an intention to have the right to participate in the management of the firm, whereas in case of portfolio investment. Dilyard this article attempts to integrate explanations of foreign direct investment and foreign portfolio investment into a single paradigm. Joe pearlman some theories on the determinants and impac ts of foreign direc t investment. Evidence from time series analysis imran sharif chaudhry, fatima farooq and arzoo mushtaq abstract.
Once cointegration has been confirmed, next step is to estimate longrun and shortrun relationships between foreign portfolio investments and their determinants. The analysis shows that investors prefer to invest in privately owned firms and institutions. A global games approach yamin ahmad, pietro cova, rodrigo harrisony november 29, 2004 abstract we present a model of investment under uncertainty about fundamentals, using a global games approach. Other conventional determinants of portfolio flows are domestic equity performance, exchange rate, interest rate differential and domestic output growth. The determinants of international portfolio holdings and home bias prepared by hamid faruqee, shujing li, and isabel k.
A study of determinants and macroeconomic impact r. Foreign portfolio investment and the financial constraints of small firms april michele knill, doctor of philosophy, 2005 dissertation directed by. Determinants of foreign direct investments in agriculture of danube region radovan kastratovic1, zorica vasiljevic2 abstract the research investigates the determinants of foreign direct investments. Walsh and jiangyan yu july 2010 abstract this working paper should not be. For this reason, the volume of foreign portfolio investment. Fdi foreign direct investment fdipc foreign direct investment promotion center fias foreign inv estment advisory service fpi foreign portfolio investment ftaa free trade agreement of the americas gats general agreement on trade in services gatt general agreement on tariffs and trade g7 group of seven ibd inter american development bank. It is also part of the balance of payments which measures the amount of money flowing in and out of a country over a given time period. A survey of the literature on the determinants of foreign. Agarwal institute of economic growth, university enclave, delhi17 abstract the present study examines the determinants of foreign portfolio investment. The paper used the annual time series data which covered the period between 19902015. In case, the investment by foreign investor is done directly in the domestic indian companies through the financial markets, then the foreign investor has to monitor not only the changes in the price of assets in which he decides to invest, but also the changes in exchange rate as the process involves conversion of foreign currency. Determinants of foreign direct investment in nigeria 1980. The determinants of disaggregated component of portfolio flows fpi i.
Other foreign investment, which includes foreign portfolio investment and international leasing, only accounted for about 3. Determinants of foreign direct investment inflows to africa, 19802007 john c. Foreiegn portfolio investment itay goldstein, assaf razin. Nigeria like most developing nations was skeptical about the virtues of free trade and investment. The paper develops a model of foreign direct investments fdi and foreign portfolio investments fpi. Foreign portfolio investment in some developing countries.
The impact of stock market returns on foreign portfolio investment in nigeria dr. Foreign direct investment versus portfolio investment. This research work was designed to investigate the impact of stock market returns on foreign portfolio. Mar 01, 2020 foreign portfolio investment occurs when a nonresident of a foreign country participates in a crossborder transaction with the aim of purchasing securities, cash equivalents, or other portfolio. Among the noneconomic factors, there are several problems regarding the identification of relevant fdi determinants. The determinants of foreign direct investment empirical evidence from bahrain ahmad mohammad obeid gharaibeh assistant professor dept. Determinants of foreign portfolio investment and its.
Perfect competition within the industries implies that there are numerous. The main objective of this paper is, then, to analyze the determinants of foreign portfolio investment from the main european countries into fourteen main host countries, including eu. A first chapter will consider statistical problems related to the questions of definition, sources of data and analysis of the relative importance of the two major investment flows fo r. Amongst other international factors, fii flow influences the market sentiment very quickly and heavily. The determinants of foreign direct investment in the manufacturing industry of malaysia wong hock tsen malaysia received, over the past decades, substantial amounts of foreign direct investment. The determinants and impacts of foreign direct investment. Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds. Department of commerce, us gdp grew by 181% from 19882010, while foreign direct investment increased by 644% in the same period. The study used annual data covering the periods 1986 to 2016 and the egarch approach was employed.
Foreign capital inflows, determinants, foreign portfolio investment, static and dynamic panel introduction the growing removal of restrictions on trading of international financial assets. Trends and determinants of foreign direct investment in. Page 3 foreign direct investment flows into a variety of different industries. Feb 20, 2010 foreign portfolio investment in india slideshare uses cookies to improve functionality and performance, and to provide you with relevant advertising. This paper examines the determinants of foreign direct investment fdi in nigeria during 1980 2011. This paper develops a relatively simple model of net foreign investment in the context of a two. Determinants of foreign direct investment inflow in tanzania. Foreign portfolio investment fpi consists of securities and other financial assets passively held by foreign investors.
Thus, the purpose of this paper is to identify the possible determinants of foreign portfolio. Determinants of fpi in developed and developing countries. In table 2 the longrun and shortrun results show that all variables have positive impact on foreign portfolio investments. Garg and dua 2014 and waqas, hashmi, and nazir 2015 pointed out that fpi needs. Given this more erratic behavior, the literature has given less attention to the determinants of foreign portfolio. Foreign portfolio investment fpi provides the investor with indirect ownership of financial assets. Agarwal institute of economic growth, university enclave, delhi17 abstract the present study examines the determinants of foreign portfolio investment fpi and its impact on the national economy in six developing asian countries. Foreign direct investments are a challenge to attract, good to host and worse to see leaving. Discussed are early studies of determinants of fdi 1 as well as determinants of fdi based on the neoclassical trade theory 2, ownership. Foreign portfolio investment shows up in a countrys capital account. Data learn how the world bank group is helping countries with covid19 coronavirus. Portfolio investment is one of the main components of private investment.
Pdf determinants of foreign portfolio investment fpi. In this study, we aim to explore the determinants that encourage foreign investors to invest in the saudi stock market. The analysis shows that investors prefer to invest in. China, india, pakistan and sri lanka because monthly data is ideal for measuring portfolio investment volatility. The monthly data is collected for the period ranging from 2000 to 2012 for four asian countries i. Determinants of foreign direct investment in developing countries. However, the foreign portfolio witnessed an impressive growth of about 80% in fiscal 20 over the. A sectoral and institutional approach prepared by james p. From the mechanistic flow theory we have progressed to the portfolio adjustment theory which rests on a firmer microeconomic foundation. This study examined the determinants of foreign direct investment fdi and foreign portfolio investment fpi volatility in nigeria. Economy investment on chinas impacts of foreign direct.
This study intends to examine the impact of determinants of foreign portfolio investment fpi in pakistan during the period of 20052014. F3 abstract the paper develops a model of foreign direct investments fdi and foreign portfolio investments fpi. Foreign portfolio investment consists of securities and other capital inflows of assets possibly held by other foreign countries. Foreign portfolio investment fpi is an investment activity that involves the purchase of bonds, stocks or money market instruments for shorter time period in foreign country. The author found that the foreign portfolio investment fpi. However, most of the studies failed to consider the inflow of foreign portfolio investment into the bond market as emphasizes were placed on the stock market companies equities by most of the studies.
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