Portfolio investment outflow and the complementary role of direct investment
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