Determinants of foreign capital inflows. The role of push versus pull factors
Our robust findings based on the recently developed methodology of sequential (twostage) estimation of linear panel-data model (SELPDM), alongside the two-step system GMM model contributes significantly to the extant literature on the determinants of foreign capital flows in developing countries. Ou...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
General Association of Economists from Romania
2023-09-01
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| Series: | Theoretical and Applied Economics |
| Subjects: | |
| Online Access: |
http://store.ectap.ro/articole/1687.pdf
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| Summary: | Our robust findings based on the recently developed methodology of sequential (twostage)
estimation of linear panel-data model (SELPDM), alongside the two-step system GMM model
contributes significantly to the extant literature on the determinants of foreign capital flows in
developing countries. Our focused discussion on the push and pull framework and its effects on
foreign capital flows using annual data for a panel of 47 developing economies over 2000 to 2019
draws interesting observations. We find the role of market size is more nuance for FDI flows than
for any other types of capital flows, furthermore on the side of domestic drivers, host countries trade
openness, quality of institutions, capital account openness and the level of financial development
matter to all the capital flows. Whereas, on the other hand, global risk aversion, US bond yield,
shadow rates, global returns and liquidity were found to be significant drivers of substantial
amounts of capital flows to the developing world. Our findings suggest the relative merit of global
factors over the domestic once in explaining significant surges in the capital flows to the developing
economies. In essence the study suggests key domestic fundamentals and global factors for sound
policies to induce surges in foreign capital for developmental goalmouths. |
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| ISSN: | 1841-8678 1844-0029 |