Determinants of foreign portfolio investments: BRICS as a unit of analysis
Keywords:
Foreign Portfolio Investment, Panel Data, BRICSAbstract
The determinants of foreign portfolio investment in BRICS (Brazil, Russia, India, China, South Africa) was examined in this study using panel data (1998-2020) analysis methods such as Fully Modified Ordinary Least Squares (FMOLS), fixed effects and pooled ordinary least squares (OLS). What necessitated the author to undertake this study is that the existing literature on the determinants of foreign portfolio investment is full of gaps. This study is all focused on trying to fill these gaps, already enunciated in the introductory section. Economic growth under the fixed effects had a significant positive influence on foreign portfolio investment. Also, the FMOLS show that savings’ impact on foreign portfolio investment was observed to be significantly positive. The pooled OLS also indicates that stock market development had a positive and significant effect on foreign portfolio investment. Finally, human capital development’s influence on foreign portfolio investment was observed to significantly negative under the FMOLS approach. The study therefore encourages BRICS authorities to implement policies aimed at increasing economic growth, stock market development and savings to attract more foreign portfolio investment.
References
Abdelhafidh, S. (2013). Potential financing sources of investment and economic growth in North African countries: A causality analysis. Journal of Policy Modeling, 35(1), 150–169.
Agarwal, I. Gu, G.W. and Prasad, E. (2020). The determinants of China’s international portfolio equity allocations, IZA Institute of Labour Economics Discussion Paper Series Number 13001.
Ahmad, F. Draz, M.U. and Yang, S. (2015). Determinants of foreign portfolio inflows: Analysis and implications for China. Asian Journal of Finance and Accounting. 7(2), 66–77.
Al-Smadi, M.O. (2018). Determinants of foreign portfolio investment: The case of Jordan, Investment Management and Financial Innovations, 15 (1), 328-336.
Alesina, A. and Dollar, D. (2000). Who gives foreign aid to whom and why? Journal of Economic Growth, 5(1), 33–63.
Aye, G.C. and Edoja, P.E. (2017). Effect of economic growth on CO2 emission in developing countries: Evidence from a dynamic panel threshold regression model. General and Applied Economics, https://doi.org/10.1080/23322039.2017.1379239
Aziz, B. Anwar, Z. and Shawnawaz, S. (2015). Determinants of foreign portfolio investment (FPI): Evidence from Pakistan, Asian Journal of Educational Researrch and Technology, 5 (2), 161-169.
Badawi, A. Qudah, A.A. and Rashideh, W.M. (2019). Determinants of foreign portfolio investment in emerging markets: Evidence from Saudi stock market, Journal of Economics and Finance, 37 (4), 1-19.
Bartels, F.L. Alladina, S.N. and Lederer, S. (2009). Foreign direct investment in Sub-Saharan Africa: Motivating factors and policy issues. Journal of African Business, 10(2), 141–162.
Bekaert, G. and Harvey, C.R. (2003). Emerging market finance, Journal of Empirical Finance, 10 (1-2), 3-56.
Chaudhry, I.S. Farooq, F. and Mushtaq, A. (2014). Factors affecting portfolio investment in Pakistan: Evidence from time series analysis, Pakistan Economic and Social Review, 52 (2), 141-158.
Dobbs, R. Oppenheim, J. Kendall, A. Thompson, F. Bratt, M. and Marel, F.V.D. (2013). Reverse the curse: Maximizing the potential of resource-driven economies. McKinsey Global Institute, 1–155.
Dua, P. and Garg, R. (2013). Foreign portfolio investment flows to India: Determinants and analysis, Delhi School of Economics Working Paper Number 225.
Duruechi, A.H. (2021). Determinants of foreign portfolio investments in an emerging economy: Evidence from Nigeria, Imo State University (Finance and Banking Department), Centre of Advanced Research and Development.
Elekwa, P. Aniebo, C. and Ogu, C. (2016). Does foreign portfolio investment affect employment growth in Nigeria? Journal of Economics and Sustainable Development, 7 (12), 81-84.
Errunza, V.R. (2001). Foreign portfolio equity investments, financial liberalization and economic development. Review of International Economics, 9 (4), 703-726.
Fagbola, O.O. Oke, O.B. and Esther, O.A. (2020). Drivers of foreign private investment inflows in emerging market: Evidence from Nigeria, Economic Development, Technological Change and Growth, 16 (6), 298-313.
Garg, R. and Dua, P. (2014). FPI flows to India: Determinants and analysis. World Development, 59 (July), 16–28.
Gordon, P. and Gupta, J.P.F. (2004). Understanding India’s services revolution. International Monetary Fund Working Paper Number 04/171.
Giritli, B.S.I. (2020). What drives foreign portfolio investment flows in South Africa. Journal of Yasar University, 58 (15), 368-380.
Haider, M. Khan, M.A. and Abdulahi, E. (2016). Determinants of foreign portfolio investment and its effects on China. International Journal of Economics and Finance, 8 (12), 143-150.
Hailu, Z.A. (2010). Demand side factors affecting the inflow of foreign direct investment to African countries: Does capital market matter? International Journal of Business and Management, 5(5), 103–112.
Im, K.S. Pesaran, M.H. and Shin, Y. (2003). Testing unit roots in heterogeneous panels. Journal of Econometrics, 115(1), 53-74.
Jothirajan (2018). Determinants of foreign portfolio investment in India. Shanlax International Journal of Arts, Science and Humanities, 5 (3), 151-155.
Kania-Morales, J. and Mroz, R. (2014). Relationship between foreign direct investment stock and foreign portfolio investment stock. Do they really matter for GDP in Poland, Germany and Great Britain. Ekonomia, 38 (2), 97-126.
Kao, C. (1999). Spurious regression and residual-based tests for co-integration in panel data, Journal of Econometrics, 90 (1999), 247-259.
Khayat, S.H. (2020). Determinants of international foreign portfolio investment flows to GCC countries: An empirical evidence. International Journal of Business and Management, 15 (10), 51-59.
Kirti, G. and Shahid, A. (2020). Determinants of foreign portfolio flows to Indian debt market. Journal of Indian Business Research, 12 (4), 459-479.
Kumar, P. Sharma, R.K. and Kumar, S. (2019). An ARDL and co-integration approach for analysing determinants of foreign portfolio investors in India. International Journal of Monetary Economics and Finance, 12 (2), 98-117.
Laeven, L. (2003). Does financial liberalization reduce financial constraints? Financial Management, 32 (1), 5-34.
Levin, A. Lin, C.F. and Chu, C.S.J. (2002). Unit root tests in panel data: Asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1-24.
Loncan, T.R. and Caldeira, J.F. (2015). Foreign portfolio capital flows and stock returns: A study of Brazilian listed firms. Estud Econ, 45 (4), 859-895.
Masood, A.Q. and Mohsin, H.A. (2002). Foreign capital inflows and domestic savings in Pakistan: Co-integration techniques and error correction modelling. Pakistan Development Review, 41(4), 825–836.
Mehar, M.R. and Hasan, A. (2018). The factors affecting portfolio investment in Pakistan. International Journal of Family Business and Management, 2 (1), 1-7.
Mudyazvivi, E. (2016). An analysis of push and pull factors of capital flows in a regional trading bloc. University of Cape Town Graduate School of Business. Unpublished Masters Thesis.
Mugableh, M.I. and Oudat, M.S. (2018). Modelling the determinants of foreign portfolio investments: A Bounds testing and causality analysis for Jordan, Academy of Accounting and Financial Studies Journal, 222 (4), 1-8.
Ndong, B. (2015). Effect of portfolio equity investment flows on equity returns and economic growth in 11 major African stock markets. International Journal of Economics and Finance, 7 (2), 225-240
Ngwenya, R. (2019). Investigating the determinants of foreign portfolio investments in emerging markets. University of South Africa, Unpublished Masters Thesis.
Nwosa, P.I. and Adeleke, O. (2017). Determinants of FDI and FPI volatility: An E-GARCH approach, CBN Journal of Approach Statistics, 8 (2), 47-67.
Nxumalo, I.S. and Makoni, P.L. (2021). Determinants of foreign capital inflows in emerging markets: The role of institutional quality, Journal of Accounting and Finance in Emerging Economies, 7 (3), 683-696.
Nyang’oro O. (2013). Foreign portfolio flows and stock market performance in Kenya: Case of Nairobi Securities exchange. School of Economics, University of Nairobi, Kenya. Paper presented at the CSAE Conference on Economic Development in Africa, pp. 1-34.
Nzete, C.A. and Akintunde, Y.W. (2019). Determinants of foreign portfolio investment volatility and macroeconomic stability in Nigeria. IOSR Journal of Economics and Finance, 10 (6), 16-23.
Oke, M.O. Adejayan, A.O. Kolapo, F.T. and Mokuolu, J.O. (2020). Pull and push factors as determinant of foreign portfolio investment in the emerging market, Risk Governance and Control: Financial Markets and Institutions, 10 (4), 33-43.
Raghavan, S. and Selvan, M. (2017). Determinants of foreign portfolio investment and their effects on the Indian stock market. International Journal of Management, 8 (3), 105-115.
Schnorrenberger, R. and Meurer, R. (2017). Determinants of foreign portfolio and total investment to emerging economies from 2007 to 2014. Brazilian Review of Finance, 15 (4), 605-629.
Singhania, M. and Saini, N. (2017). Determinants of FPI in developed and developing countries. Global Business Review, 19 (1), 187-213.
Stead, R. (2007). Foundation quantitative methods for business. Prentice Hall. England.
Sumanjeet, D. (2009). Foreign capital flows into India: Compositions, regulations, issues and policy options. Asia Research Centre in conjunction with Murdoch University (Australia), Working Paper Number 155.
Syarifuddin, F. (2020). The dynamics of foreign portfolio investment and exchange rate: An interconnection approach in ASEAN. Bank Indonesia Working Paper Series Number 8/2020
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2022 Kunofiwa Tsaurai
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
The author fully assumes the content originality and the holograph signature makes him responsible in case of trial.
