Where do the advanced countries invest? An investigation of capital flows from advanced countries to emerging economies

Abstract

This paper examines determinants of foreign portfolio investment (FPI) from the developed countries to emerging economies using the new data from the IMF’s large coordinated portfolio investment surveys. Employing an assortment of econometric techniques, we attempt to shed further light on the determinants bilateral FPI capital flows with a number of contributions to the current literature. This paper advances other previous study by utilizing the new disaggregated FPI capital flows and a number of broad differentials. We find that portfolio investors from G7 countries tend to depart from efficient portfolio allocation and they are biased towards some differentials between source and recipient countries.