Foreign Direct and Portfolio Investment in the Contemporary Globalized World: Should They Be Still Treated Separately?

摘要

Foreign direct investment (FDI) and foreign portfolio investment (FPI) havebeen long considered as independent forms of international capital flows. Thispaper analyzes the mutual relationship between FDI and FPI and attempts toanswer the question whether they complement or substitute for each other froma foreign investor’s point of view. The paper describes the main characteristicsof FDI and FPI in terms of their volatility and profitability. We analyze thelong-run and short-run relationships between FDI and FPI using vector errorcorrection (VEC) regressions on data for Poland as it is the largest countryin Central and Eastern Europe and receives the lion’s share of these twoforms of capital in the region. Our investigation suggests that FDI and FPImay be regarded as substitutes. In economically stable periods FDI tends todominate over FPI but during insecurity and economic distress FPI starts togain importance.