Foreign Portfolio Investment In Some Developing Countries: A Study of Determinants and Macroeconomic Impact

R. N. Agarwal
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R. N. Agarwal: Institute of Economic Growth

Indian Economic Review, 1997, vol. 32, issue 2, 217-229

Abstract: The present study examines the determinants of foreign portfolio investment (FPI) and its impact on the national economy in six developing Asian countries. Regression results show that inflation rate, real exchange rate, index of economic activity and the share of domestic capital market in the world stock market capitalization are four statistically significant determinants of FPI. The first variable has a negative coefficient while the last three variables possess positive coefficients. Foreign direct investment, total foreign trade and current account deficit variables are found to be statistically insignificant. Regarding the impact of FPI on the national economies, it is found that the index of economic activities and inflation rate show an upward trend. Volatility in portfolio flows has not increased overtime. Ratio of foreign debt and debt-servicing to GDP has declined. But the rule of thumb regarding the issue of sustainability of FPI suggests that India and Indonesia have crossed the upper bounds of permissible debt ratios.

JEL-codes: F21 F41 (search for similar items in EconPapers)
Date: 1997
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