Do foreign portfolio capital flows affect domestic investment? Evidence from Brazil
Colombo, Jefferson A. and Loncan, Tiago R. and Caldeira, João F. (2019) Do foreign portfolio capital flows affect domestic investment? Evidence from Brazil. International Journal of Finance and Economics, 24 (2). pp. 855-883. ISSN 1099-1158 (https://doi.org/10.1002/ijfe.1695)
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Abstract
Although there are several direct and indirect theoretical channels through which foreign capital flows may affect domestic investment, empirical evidence remains inconclusive. In this paper, we employ a VARX framework to assess the impact of Equity Foreign Portfolio Investment (EFPI) on domestic investment growth, employing monthly series of capital flows and gross capital formation for the Brazilian economy. Our results suggest that EFPI played a non-negligible role in explaining aggregate investment fluctuations, but only before the 2008 global financial crisis. After the crisis, a period marked first by a shift in economic policy in 2008-09, with substantial increases in government intervention, followed by deterioration in the institutional outlook and political stability in 2014-15, mostly against the backdrop of the Petrobras corruption scandal, unexpected shocks to EFPI no longer led any real effects on investment growth. Whilst, in general, our results vouch for beneficial effects of equity capital flows on investment, this virtuous relationship is likely disturbed by interventionist policies and political unrest.
ORCID iDs
Colombo, Jefferson A., Loncan, Tiago R. ORCID: https://orcid.org/0000-0002-2713-4055 and Caldeira, João F.;-
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Item type: Article ID code: 65467 Dates: DateEvent30 April 2019Published4 November 2018Published Online10 September 2018AcceptedSubjects: Social Sciences > Finance Department: Strathclyde Business School > Accounting and Finance Depositing user: Pure Administrator Date deposited: 18 Sep 2018 15:11 Last modified: 21 Nov 2024 01:15 Related URLs: URI: https://strathprints.strath.ac.uk/id/eprint/65467