scholarly journals Analysis of International Capital Inflows and Institutional Quality in Emerging Markets

Economies ◽  
2021 ◽  
Vol 9 (4) ◽  
pp. 179
Author(s):  
Immaculate Simiso Nxumalo ◽  
Patricia Lindelwa Makoni
Keyword(s):  
Emerging Markets ◽  
Foreign Capital ◽  
Institutional Environment ◽  
Emerging Market ◽  
Composite Index ◽  
Institutional Quality ◽  
Capital Inflows ◽  
Distributed Lag ◽  
Long Run ◽  
Foreign Capital Inflows

This study investigates the cointegrating and causality relationships between foreign direct investment (FDI), foreign portfolio investment (FPI) and institutional quality in a sample of 12 emerging market economies for the period from 2007 to 2017. A composite index for institutional quality composed of the Worldwide Governance Indicators was constructed using the Principal Components Analysis (PCA) method. The panel autoregressive distributed lag (ARDL) model and the error correction model (ECM) were applied to assess the cointegrating and causal relationships between the key variables. In addition to finding significant cointegrating relationships between institutional quality and the foreign capital inflows (FDI and FPI), the results confirmed unidirectional causality from FDI and FPI to institutional quality in the long run. The results further suggested that the long-run relationship between the two foreign capital inflows was more of a trade-off nature, dependent upon the dynamics of the institutional environment in the host economy. The recommendations suggested include that emerging markets should continue to open their economies in pursuit of capital inflows, which will reciprocally strengthen their domestic institutional environment. Strengthening institutions could curtail the persistence of institutional weaknesses and insulate emerging economies from the adverse effects of volatile capital flows and, over the long run, enhance capital inflows.

Determinants of Foreign Capital Inflows in Emerging Markets: The Role of Institutional Quality

2021 ◽  
Vol 7 (3) ◽  
Author(s):  
Immaculate Simiso Nxumalo ◽  
Patricia Lindelwa Makoni
Keyword(s):  
Economic Growth ◽  
Emerging Markets ◽  
Foreign Capital ◽  
Emerging Market ◽  
Institutional Quality ◽  
Capital Inflows ◽  
Emerging Market Economies ◽  
Market Economies ◽  
Foreign Capital Inflows ◽  
The Impact

Purpose: The purpose of the study was to examine the key determinants of foreign direct investment (FDI) and foreign portfolio investment (FPI) in emerging market economies, with greater emphasis placed on the impact of institutional quality. Design/Methodology/Approach: The study applied a panel data system generalised method of moments (GMM) model using annual data spanning the period 2007 to 2017, in respect of 12 emerging market economies. To measure institutional quality, the study adopted the Worldwide Governance Indicators, and constructed a composite index for institutional quality using the Principal Components Analysis (PCA) method. Findings: The results revealed that FDI in the selected emerging markets was attracted by institutional quality and economic growth. Capital account openness, institutional quality and economic growth were positive determinants of FPI. However, stock market development stood out as the key determinant factor for foreign capital inflows. Implications/Originality/Value: The implications of these findings are that, in their pursuit of foreign capital inflows, these emerging markets should continue to liberalise their economies and develop their financial markets. Importantly, such developments must be coupled with the strengthening of the formal governance institutions. Robust institutions would not only curb institutional weaknesses that deter international capital inflows, but would also insulate emerging markets from unfavourable effects of volatile capital flows.                                                            

scholarly journals The impact of foreign capital shifts on economic activities and asset prices: a threshold VAR approach

2020 ◽  
Vol 4 (3) ◽  
pp. 87-104
Author(s):  
Boubekeur Baba ◽  
Güven Sevil
Keyword(s):  
South Korea ◽  
Emerging Markets ◽  
Asset Prices ◽  
Foreign Capital ◽  
Emerging Market ◽  
Capital Inflows ◽  
Economic Activities ◽  
Content Type ◽  
Foreign Capital Inflows ◽  
The Impact

Purpose The purpose of this paper is to investigate the impact of foreign capital shifts on economic activities and asset prices in South Korea. Design/methodology/approach The authors in this paper apply the Bayesian threshold vector autoregressive (TVAR) model to estimate the regimes of large and low inflows of foreign capital. Then, structural impulse-response analysis is used to check whether the responses of the variables differ across the estimated regimes. The model is estimated using quarterly data of foreign capital inflows, gross domestic product (GDP), consumer price index, credit to the private non-financial sector, real effective exchange rate (REER), stock returns and house prices. Findings The main findings suggest that large inflows of gross foreign capital, foreign direct investments (FDI) and foreign portfolio investments (FPI) are ineffective to boost economic growth, but large inflows of other foreign investments (OFIs) significantly contribute to GDP. The decreases in the foreign capital inflows are associated with larger depreciation of REER. The large inflows of gross foreign capital, FDI and OFIs are associated with further expansion of credit supply to private non-financial sectors. Research limitations/implications The policy implications of foreign capital inflows are of particular importance to all the emerging markets alike. However, the empirical analysis is limited to the case of South Korea due to various reasons. The experience with international capital inflows among emerging markets is heterogeneous. Therefore, it would be better to take each case of emerging market individually. In addition, TVAR analysis requires a long data sample, which unfortunately is not available for most of the emerging markets. Originality/value The foreign capital inflows are shown to be procyclical and notoriously volatile in many studies. Nevertheless, this topic has commonly been studied using linear VAR models, which do not properly deal with the cyclical characteristics of foreign capital inflows. This study attempts to resolve these methodological limitations by examining a non-linear VAR model that is capable of capturing the structural breaks associated with the cyclical behaviors of foreign capital inflows.

Foreign capital inflows and economic growth: the experience of low-income countries in Sub Saharan Africa

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Atif Awad
Keyword(s):  
Low Income ◽  
Foreign Capital ◽  
Ordinary Least Squares ◽  
Capital Inflows ◽  
Sub Saharan Africa ◽  
Low Income Countries ◽  
Content Type ◽  
Long Run ◽  
Foreign Capital Inflows ◽  
The Impact

Purpose This paper aims to investigate the long-run impact of selected foreign capital inflows, including aid, remittances, foreign direct investment (FDI), trade and debt, on the economic growth of 21 low-income countries in the Sub Saharan Africa (SSA) region, during the period 1990–2018. Design/methodology/approach To obtain this objective and for robust analysis, a parametric approach, which was dynamic ordinary least squares, and a non-parametric technique, which was fully modified ordinary least squares, were used. Findings The results of both models confirmed that, in the long run, trade and aid affected the growth rate of the per capita income in these countries in a positive way. However, external debt seemed to have an adverse influence on such growth. Originality/value First, this is the initial study that has addressed this matter across a homogenous group of countries in the SSA region. Second, while most of the previous studies regarding capital inflows into the SSA region have focused on the impact of only one or two aspects of such foreign capital inflows on growth, the present study, instead, examined the impact of five types of foreign capital inflows (aid, remittances, FDI, trade and debt).

scholarly journals Cross Border Portfolio Investment and The Volatility of Stock Market Index and Rupiah's Rate

2015 ◽  
Vol 17 (4) ◽  
pp. 403-432 ◽  
Author(s):  
Al Muntasir
Keyword(s):  
Foreign Capital ◽  
Composite Index ◽  
Capital Flow ◽  
Capital Inflows ◽  
Stock Market Index ◽  
Dynamic Relationship ◽  
Market Index ◽  
Daily Data ◽  
Foreign Capital Inflows ◽  
The Impact

This paper use daily data during the period 2010-2014 to analyse the impact of foreign capital inflows on capital market volatility and on the volatility of Rupiah’s rate. The results shows the flow of foreign capital positively affect the Jakarta Composite Index (JCI) but not the rate of Rupiah. Using Vector Error Correction Model, this paper finds a cointegrated and dynamic relationship between the changes in foreign capital flow in Indonesia, with the JCI and the exchange rate of Rupiah against USD. Changes in the Rupiah’s rate significantly affect the foreign capital flow and the JCI, while the JCI does not significantly affect the flow of foreign capital and the changes of Rupiah’s rate.

scholarly journals The impact of foreign capital inflows on poverty in Vietnam: An empirical investigation

2021 ◽  
Vol 7 (2) ◽  
pp. 31-49
Author(s):  
Mercy T. Musakwa ◽  
Nicholas M. Odhiambo ◽  
Sheilla Nyasha
Keyword(s):  
Foreign Capital ◽  
Household Consumption ◽  
Capital Inflows ◽  
Infant Mortality Rate ◽  
Consumption Expenditure ◽  
Poverty Measure ◽  
Long Run ◽  
Short Run ◽  
Foreign Capital Inflows ◽  
The Impact

Abstract This study investigates the impact of foreign capital inflows on poverty in Vietnam, using annual time series data from 1990 to 2018. The study was motivated by the need to establish if burgeoning foreign capital inflows in Vietnam can support the poverty alleviation agenda. Foreign direct investment (FDI) and external debt were used as proxies for foreign capital inflows; and infant mortality rate, Human Development Index (HDI) and household consumption expenditure were used as poverty proxies. Using the autoregressive distributed lag (ARDL) approach, the study found foreign direct investment to reduce poverty in the short run and long run when household consumption expenditure was used as a poverty measure. However, the study found FDI to worsen poverty in the short run when infant mortality rate and HDI were used as poverty proxies. The study found external debt to have poverty mitigating effect in the short run regardless of the poverty measure used and in the long run only when household consumption expenditure was used as a poverty measure.

scholarly journals Inflationary Rate in Nigeria: Impact of Foreign Capital Inflows

2021 ◽  
Vol 7 (1) ◽  
pp. 44-54
Author(s):  
Olabode Eric Olabisi
Keyword(s):  
Foreign Capital ◽  
Negative Impact ◽  
Forecast Error ◽  
Daily Basis ◽  
The Body ◽  
Capital Inflows ◽  
Parameter Estimates ◽  
Long Run ◽  
Foreign Capital Inflows ◽  
The Impact

As the prices of daily needs are aggravating in Nigeria, the value of the country’s currency (naira) is less appreciated on a daily basis, and this pose a threat to a good standard of living in Nigeria. Therefore, this study investigated the impact of foreign capital inflows on the persistent increase in inflation in Nigeria over the period of 1985 to 2019. The Autoregressive Distributed Lags was used to obtain the parameter estimates of the long run relationship between foreign capital inflows and inflation. By using the Forecast Error Variance Decomposition techniques, the cause-effect analysis of foreign capital inflows and inflation was determined. Results provide evidence of a long run relationship between the series. Results further indicate that inflation is sensitive to foreign capital inflows variables such as net official development assistance received and remittance inflows in Nigeria. Policies that reduce the negative impact on inflation are recommended in the body of the paper.

Foreign Capital Flows to Emerging Markets: a Test of Policy Arbitrage

2004 ◽  
Vol 5 (1) ◽  
pp. 21-32
Author(s):  
Anand Shetty ◽  
John Manley
Keyword(s):  
Emerging Markets ◽  
Capital Flows ◽  
Foreign Capital ◽  
Capital Inflows ◽  
Economic Policies ◽  
National Economic ◽  
Foreign Capital Flows ◽  
Foreign Capital Inflows ◽  
Mexican Peso

Private capital that dominated the foreign capital inflows to emerging markets in the 1990s has been linked to recent financial crises in these markets. This linkage has raised questions about the market’s ability to discipline the flow of capital to emerging markets and the role of policy arbitrage. Policy-arbitrage hypothesis states that international capital flows will arbitrage across national economic policies in search of sound markets. This paper examines the pattern of changes in the foreign capital inflows to emerging markets in the 1990s and tests the policy-arbitrage hypothesis using 22 country-data for a period immediately following the Mexican peso crisis. The test results support the policy-arbitrage hypothesis.

scholarly journals Renewable and Non-Renewable Energy Consumption in BRICS: Assessing the Dynamic Linkage between Foreign Capital Inflows and Energy Consumption

Energies ◽  
2021 ◽  
Vol 14 (10) ◽  
pp. 2974
Author(s):  
Zhexuan Qin ◽  
Ilhan Ozturk
Keyword(s):  
Renewable Energy ◽  
Energy Consumption ◽  
Foreign Capital ◽  
Capital Inflows ◽  
Renewable Energy Consumption ◽  
Negative Change ◽  
Long Run ◽  
Non Linear ◽  
Foreign Capital Inflows ◽  
Positive Effect

This study attempt to fill the research gap by figuring out the dynamic effects of foreign capital inflows effect on renewable energy and non-renewable consumption by using the time series non-linear ARDL approach for BRICS from 1991 to 2019. Non-linear ARDL estimates show that positive change in foreign capital inflows has a positive effect on renewable consumption in Brazil, India, and South Africa in long run. Also, the negative change in foreign capital inflows exhibits negatively liked with renewable energy consumption in BRICS economies, except Russia in long run. We find that positive shock in foreign capital inflows tends to increase non-renewable energy consumption in BRICS except India in the long run. Finding suggests that negative change in foreign capital inflows has negative impacts on non-renewable energy consumption in India and Brazil, while the positive effect in only China in the long run.

Sign in / Sign up

Export Citation Format

Share Document