FOREIGN PORTFOLIO INVESTMENT, FINANCIAL OPENNESS AND ECONOMIC GROWTH IN LOW AND HIGH INCOME COUNTRIES
FOREIGN PORTFOLIO INVESTMENT, FINANCIAL OPENNESS AND ECONOMIC GROWTH IN LOW AND HIGH INCOME COUNTRIES

Summary/Abstract: This study was conducted to investigate the impact of foreign portfolio investment and financial openness on economic growth in low and high income countries. Time series data spanning 1970-2020 was analyzed using the Fully Modified Ordinary Least Square (FMOLS) while other econometric techniques such as the Pooled Mean Group (PMG) and Non-Linear Autoregressive Distributed Lag Model (NARDL) were used to enhance the robustness of study findings. Findings showed that foreign portfolio investment (FPI) had no significant relationship with economic growth in low/middle income countries while a significant positive relationship was found for high income countries. Result findings also found that financial openness (FOP) had no significant impact on the economic growth of any of the income classes. The interaction of FPI and FOP was found to be insignificant for low/middle countries while significant for high income countries. Robustness check revealed the presence of short –run asymmetric effect of FPI on economic growth in low/middle income countries while the same relationship was found between FOP and economic growth for high income countries. The study therefore concluded that foreign portfolio investment and financial openness have no joint or independent impact on economic growth in low income countries and foreign portfolio investment has a significant independent and joint impact on economic growth in high income countries.

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