Determinants of Foreign Portfolio Investment: Evidence From Sub-Saharan Africa
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Date
2015-07
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University of Ghana
Abstract
Motivated by the need to analyse the factors behind portfolio inflows of developing countries,
this study aims to investigate the determinants of portfolio inflows (PI) of Sub-Saharan Africa
(SSA). The study uses a panel data on 17 SSA countries over the period, 2005-2013. Net
portfolio equity inflows as a percentage of Gross Domestic Product (GDP) is the dependant
variable. The study employed a panel regression with domestic factors like market size, level
of financial development, current account balance and trade openness. The explanatory
variables like international interest rate and the growth rate of industrialised countries are also
included as the external factors. By employing the Generalized Methods of Moment (GMM)
dynamic panel estimation framework, the study finds that current account balance and
financial development have negative relationship with portfolio inflows. The results also
suggest that market size, past portfolio inflows and the growth rate of industrialised countries
positively affect portfolio flows to SSA. We however found no significant impact of trade
openness and international interest rate on portfolio flows to the sub-region. The study also
investigates the impact of portfolio inflows on economic growth of SSA. Using the Vector
Error Correction Model (VECM) over the period 2005-2013, finding revealed that, there is a
long-run negative relationship running from portfolio inflows to economic growth. We also
find no short-run relationship running from economic growth to portfolio inflows, but the
reverse is true.
Description
Thesis (MPhil) - University of Ghana, 2015