Can Foreign Portfolio Investment Contribute to Post-2015 Development Goals in Asia?

This paper analyses the economic impacts of equity and bond foreign portfolio investment (FPI) inflows on GDP growth, domestic investment and equity market capitalisation in the host country, using panel data from 10 developing Asian countries for the period 1995-2011. Increases of equity FPI inflows in Asia are found to be associated with higher GDP growth, increased domestic investment and higher market capitalisation. Bond FPI inflows, on the other hand, appear not to have significant effects. Notably, foreign borrowing has a positive but less strong impact on GDP growth and domestic investment than equity FPI inflows. These results suggest that developing countries should promote inflows of equity FPI to supplement financial resources dedicated to achieving the post-2015 development goals.

Author: Pradeep Agrawal