Artikel

Analysis of international capital inflows and institutional quality in emerging markets

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.

Language
Englisch

Bibliographic citation
Journal: Economies ; ISSN: 2227-7099 ; Volume: 9 ; Year: 2021 ; Issue: 4 ; Pages: 1-16 ; Basel: MDPI

Classification
Wirtschaft
Subject
emerging markets
foreign direct investment
foreign portfolio investment
institutional quality
international capital inflows

Event
Geistige Schöpfung
(who)
Nxumalo, Immaculate Simiso
Makoni, Patricia Lindelwa Rudo
Event
Veröffentlichung
(who)
MDPI
(where)
Basel
(when)
2021

DOI
doi:10.3390/economies9040179
Handle
Last update
10.03.2025, 11:42 AM CET

Data provider

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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.

Object type

  • Artikel

Associated

  • Nxumalo, Immaculate Simiso
  • Makoni, Patricia Lindelwa Rudo
  • MDPI

Time of origin

  • 2021

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