Macroeconomic Factors Affecting Foreign Portfolio Flows in Developed and Developing Countries

Abstract

Purpose - Foreign capital flows play an important role in the growth process of countries. While developed countries need foreign capital flows for sustainable growth, developing countries need to reduce debt imbalances, create macroeconomic stability and achieve economic growth. Foreign capital flows; are divided into foreign direct investments (FDI) and foreign portfolio investments (FPI). Studies on these trends generally focused on direct investments. Studies on portfolio investments are aimed at measuring the effects of these investments on macroeconomic variables in general. In this study, the factors affecting foreign portfolio investments were determined and the effects of these factors on foreign portfolio investments were tried to be determined.

Design/methodology/approach - Between the years 1961-2018, the data obtained from UNCTAD, OECD and the World Bank and macroeconomic data affecting foreign portfolio flows were tried to be determined by panel data analysis of 168 countries, 38 of which were developed and 130 of which were developing. Macro economic factors; consumer price index, public and private sector external debt, economic growth, trade balance, foreign direct investments, credit rating and exchange rate.

Findings - According to the results obtained within the scope of the study, a significant and negative relationship between foreign portfolio investments and consumer price index; A significant and positive relationship was found between growth, public and private sector external debt, foreign direct investments, trade balance, credit rating and exchange rate.

Discussion - In the study, it was concluded that the factors used in the analysis explain the foreign portfolio investments by 75%, but it would be useful to investigate the remaining factors.