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Portfolio investment outflow and the complementary role of direct investment

Author

Listed:
  • Abdullah Noman
  • Mohammad Nakibur Rahman
  • Atsuyuki Naka

Abstract

Purpose - – This paper aims to uncover potential contemporaneous relationship between foreign portfolio investment (FPI) and another popular type of cross-border investment outflow, namely, foreign direct investment (FDI). Design/methodology/approach - – The relationship between FPI and FDI are modeled using simultaneous equations approach to take potential endogeneity in to account. In a panel of 45 countries over the period of 2001-2009, FPI and FDI are found to be strategically complimentary to each other. Findings - – The two-stage least square estimates suggest existence of both statistically and economically significant relationship between these two types of outflows. In particular, the FDI outflow has empirically significant predictive power in explaining the FPI outflow. Similarly, the FPI outflow also has significant explanatory power for the observed level of FDI outflow. Second, the FPI has greater explanatory power for FDI outflow than the FDI for the FPI outflow. Originality/value - – The authors believe that the paper would contribute to the relevant literature in terms of its originality and scope. The empirical findings of the paper have valuable policy implications.

Suggested Citation

  • Abdullah Noman & Mohammad Nakibur Rahman & Atsuyuki Naka, 2015. "Portfolio investment outflow and the complementary role of direct investment," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 7(3), pages 190-206, August.
    • Handle: RePEc:eme:jfeppp:v:7:y:2015:i:3:p:190-206
    DOI: 10.1108/JFEP-03-2014-0024
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    Citations

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    Cited by:

    1. Immaculate Simiso Nxumalo & Patricia Lindelwa Makoni, 2021. "Analysis of International Capital Inflows and Institutional Quality in Emerging Markets," Economies, MDPI, vol. 9(4), pages 1-16, November.

    More about this item

    Keywords

    Investment; Endogeneity; International finance; Foreign direct investment; Home bias; Foreign portfolio investment; Simultaneous equations; F21; F30; F32;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F30 - International Economics - - International Finance - - - General
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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