Determinants of Foreign Portfolio and Total Investment to Emerging Economies from 2007 to 2014
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Abstract
Foreign portfolio investment has been growing since the beginning of the 1990's and the fall in portfolio investment stock due to the global financial crisis in 2008 was reverted after two years. The determinants of foreign portfolio investment and foreign total investment are estimated for dynamic panels of emerging economies from 2007 to 2014 using the Generalized Method of Moments (GMM). With respect to movements in portfolio investment, predictors of sovereign risk, U.S. stock market performance, domestic investment and fiscal performance are statistically significant. In regard to foreign total investment, predictors of sovereign risk, Fed Funds rate, domestic investment, current account balance, fiscal performance and real exchange rates are statistically significant. Domestic and foreign variables are both important to explain capital flows. Hence, in general results show that emerging economies might coordinate economic policy with the adopted external funding strategy.
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Long Paper
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