Foreign Direct Investment and Foreign Portfolio Investment in the contemporary globalized world: should they be still treated separately?

Marcin Humanicki, Robert Kelm () and Krzysztof Olszewski ()

MPRA Paper from University Library of Munich, Germany

Abstract: Foreign direct investment (FDI) and foreign portfolio investment (FPI) have been long considered as distinct and independent forms of international capital flows, but in the globalized world there are reasons to treat them as interconnected phenomena. 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. Firstly, the paper describes the main characteristics of FDI and FPI in terms of a trade-off between their volatility and profitability. Secondly, it provides a literature review on the determinants of these two types of foreign investment. Finally, we analyse the long-run and short-run relationships between FDI and FPI running VECM regressions on data for Poland. Our research suggests that these two forms of foreign investment are substitutes. To be more specific, in economically stable periods FDI tends to dominate over FPI, but during insecurity and economic distress, both in source and host countries, FPI starts to gain importance.

Keywords: foreign direct investment; foreign portfolio investment; emerging market economies; cointegration (search for similar items in EconPapers)
JEL-codes: F21 F41 O1 (search for similar items in EconPapers)
Date: 2013-11, Revised 2014-09
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/58410/1/MPRA_paper_58410.pdf original version (application/pdf)

Related works:
Working Paper: Foreign Direct Investment and Foreign Portfolio Investment in the contemporary globalized world: should they be still treated separately? (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:58410

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().