To read the full version of this content please select one of the options below:

Portfolio investment outflow and the complementary role of direct investment

Abdullah Noman (Department of Accounting and Finance, Nicholls State University, Thibodaux, LA, USA)
Mohammad Nakibur Rahman (Department of Accounting and Finance, University of North Carolina, Pembroke, NC, USA)
Atsuyuki Naka (Department of Economics and Finance, University of New Orleans, LA, USA)

Journal of Financial Economic Policy

ISSN: 1757-6385

Article publication date: 3 August 2015

Downloads
2568

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.

Keywords

Acknowledgements

The authors would like to thank the editor and the anonymous reviewers for the comments and suggestions that have resulted in substantial improvement of this paper.

Citation

Noman, A., Rahman, M.N. and Naka, A. (2015), "Portfolio investment outflow and the complementary role of direct investment", Journal of Financial Economic Policy, Vol. 7 No. 3, pp. 190-206. https://doi.org/10.1108/JFEP-03-2014-0024

Publisher

:

Emerald Group Publishing Limited

Copyright © 2015, Emerald Group Publishing Limited