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Portfolio capital flows and economic growth: Do institutional factors matter?

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  • Murdipi, Rafiqa
  • Baharumshah, Ahmad Zubaidi
  • Law, Siong Hook

Abstract

This paper examines the impact of institutional qualities on country-specific pull versus push factors on portfolio flows and growth. The interplay among economic policy uncertainty (EPU), host country’s institutional quality and growth are systematically studied. The analysis reveals that social institutions matter in toning down risks associated with global interest rate. Political stability is vital in moderating the negative effects linked to EPU, while social cohesion mitigates the stressful (negative) effects of soaring debt–GDP ratios. Institutions and domestic conditions serve as devices to partially insulate economies from stress conditions, including the spillovers from the unconventional monetary policy originating from the frontier countries. Policy responses should emphasize on reforming institutions to smooth the fluctuations of portfolio capital inflows and to procure stronger growth. The empirical results show that democracy matters in the growth empiric. The economic-enhancing benefits of portfolio investments remain fairly robust to several measures of institutions.

Suggested Citation

  • Murdipi, Rafiqa & Baharumshah, Ahmad Zubaidi & Law, Siong Hook, 2023. "Portfolio capital flows and economic growth: Do institutional factors matter?," Research in International Business and Finance, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:riibaf:v:66:y:2023:i:c:s0275531923001459
    DOI: 10.1016/j.ribaf.2023.102019
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    References listed on IDEAS

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    1. Acemoglu, Daron & Johnson, Simon & Robinson, James A., 2005. "Institutions as a Fundamental Cause of Long-Run Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 6, pages 385-472, Elsevier.
    2. Antonio Savoia & Kunal Sen, 2016. "Do We See Convergence in Institutions? A Cross-Country Analysis," Journal of Development Studies, Taylor & Francis Journals, vol. 52(2), pages 166-185, February.
    3. Bruno, Valentina & Shin, Hyun Song, 2015. "Capital flows and the risk-taking channel of monetary policy," Journal of Monetary Economics, Elsevier, vol. 71(C), pages 119-132.
    4. Ali M. Kutan & Nahla Samargandi & Kazi Sohag, 2017. "Does Institutional Quality Matter for Financial Development and Growth? Further Evidence from MENA Countries," Australian Economic Papers, Wiley Blackwell, vol. 56(3), pages 228-248, September.
    5. Fernandez-Arias, Eduardo, 1996. "The new wave of private capital inflows: Push or pull?," Journal of Development Economics, Elsevier, vol. 48(2), pages 389-418, March.
    6. Kang, Tae Soo & Kim, Kyunghun, 2019. "Push vs. Pull Factors of Capital Flows Revisited: A Cross-country Analysis," Working Papers 19-1, Korea Institute for International Economic Policy.
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    Cited by:

    1. Kumar, Virender & Dua, Pami, 2024. "What explains foreign portfolio investment inflows to BRICS countries?," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 32-46.
    2. Huang, Sainan & Hueng, C. James & Zeng, Songlin, 2024. "Puzzling retrenchment of banking outflows: The role of information asymmetry," Research in International Business and Finance, Elsevier, vol. 68(C).

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