Determinants of Foreign Capital Inflows in Emerging Markets: The Role of Institutional Quality
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...
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| Format: | Article |
| Language: | English |
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CSRC Publishing
2021-12-01
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| Series: | Journal of Accounting and Finance in Emerging Economies |
| Subjects: | |
| Online Access: | https://publishing.globalcsrc.org/ojs/index.php/jafee/article/view/1881 |
| _version_ | 1818888220372369408 |
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| author | Immaculate Simiso Nxumalo Patricia Lindelwa Makoni |
| author_facet | Immaculate Simiso Nxumalo Patricia Lindelwa Makoni |
| author_sort | Immaculate Simiso Nxumalo |
| collection | DOAJ |
| description | 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. |
| first_indexed | 2024-12-19T16:49:40Z |
| format | Article |
| id | doaj.art-5cb5fa73ff39470494c30b99ab9d475e |
| institution | Directory Open Access Journal |
| issn | 2519-0318 2518-8488 |
| language | English |
| last_indexed | 2024-12-19T16:49:40Z |
| publishDate | 2021-12-01 |
| publisher | CSRC Publishing |
| record_format | Article |
| series | Journal of Accounting and Finance in Emerging Economies |
| spelling | doaj.art-5cb5fa73ff39470494c30b99ab9d475e2022-12-21T20:13:33ZengCSRC PublishingJournal of Accounting and Finance in Emerging Economies2519-03182518-84882021-12-017310.26710/jafee.v7i3.1881Determinants of Foreign Capital Inflows in Emerging Markets: The Role of Institutional QualityImmaculate Simiso Nxumalo0Patricia Lindelwa Makoni1Postgraduate Student, Department of Finance, Risk Management and Banking, University of South AfricaProfessor of Finance, Department of Finance, Risk Management and Banking, University of South AfricaPurpose: 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.https://publishing.globalcsrc.org/ojs/index.php/jafee/article/view/1881Institutional QualityForeign capital flowsFDIFPIEmerging markets |
| spellingShingle | Immaculate Simiso Nxumalo Patricia Lindelwa Makoni Determinants of Foreign Capital Inflows in Emerging Markets: The Role of Institutional Quality Journal of Accounting and Finance in Emerging Economies Institutional Quality Foreign capital flows FDI FPI Emerging markets |
| title | Determinants of Foreign Capital Inflows in Emerging Markets: The Role of Institutional Quality |
| title_full | Determinants of Foreign Capital Inflows in Emerging Markets: The Role of Institutional Quality |
| title_fullStr | Determinants of Foreign Capital Inflows in Emerging Markets: The Role of Institutional Quality |
| title_full_unstemmed | Determinants of Foreign Capital Inflows in Emerging Markets: The Role of Institutional Quality |
| title_short | Determinants of Foreign Capital Inflows in Emerging Markets: The Role of Institutional Quality |
| title_sort | determinants of foreign capital inflows in emerging markets the role of institutional quality |
| topic | Institutional Quality Foreign capital flows FDI FPI Emerging markets |
| url | https://publishing.globalcsrc.org/ojs/index.php/jafee/article/view/1881 |
| work_keys_str_mv | AT immaculatesimisonxumalo determinantsofforeigncapitalinflowsinemergingmarketstheroleofinstitutionalquality AT patricialindelwamakoni determinantsofforeigncapitalinflowsinemergingmarketstheroleofinstitutionalquality |