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Foreign Direct and Portfolio Investment in the Contemporary Globalized World: Should They Be Still Treated Separately?

Author

Listed:
  • Marcin Humanicki

    (Narodowy Bank Polski)

  • Robert Kelm

    (University of Łódz)

  • Krzysztof Olszewski

    (Cracow University of Economics
    Warsaw School of Economics)

Abstract

Foreign direct investment (FDI) and foreign portfolio investment (FPI) have been long considered as independent forms of international capital flows. This paper analyzes the mutual relationship between FDI and FPI and attempts to answer the question whether they complement or substitute for each other from a foreign investor’s point of view. The paper describes the main characteristics of FDI and FPI in terms of their volatility and profitability. We analyze the long-run and short-run relationships between FDI and FPI using vector error correction (VEC) regressions on data for Poland as it is the largest country in Central and Eastern Europe and receives the lion’s share of these two forms of capital in the region. Our investigation suggests that FDI and FPI may be regarded as substitutes. In economically stable periods FDI tends to dominate over FPI but during insecurity and economic distress FPI starts to gain importance.

Suggested Citation

  • Marcin Humanicki & Robert Kelm & Krzysztof Olszewski, 2017. "Foreign Direct and Portfolio Investment in the Contemporary Globalized World: Should They Be Still Treated Separately?," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 9(2), pages 115-135, June.
    • Handle: RePEc:psc:journl:v:9:y:2017:i:2:p:115-135
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    References listed on IDEAS

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    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.

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    More about this item

    Keywords

    foreign direct investment; foreign portfolio investment; emerging market economies; econometric modeling; cointegration;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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