IMPACT OF FOREIGN CAPITAL INFLOWS ON DOMESTIC INVESTMENTS: A PANEL DATA ANALYSIS FOR SELECTED DEVELOPING COUNTRIES

This paper empirically analyzes the relationship between the foreign capital inflowsand domestic investment in 14 developing countries -Bangladesh, Botswana, Brazil, China,India, Indonesia, Mexico, Morocco, Pakistan, Peru, Philippines, South Africa, Thailand,and Turkey- over the period 1990-2017. Pesaran’s Cross-Section Dependence Testwas performed to test the correlation and IPS Unit Root Test was applied to reveal thestationarity level between the units. Dumitrescu and Hurlin’s Granger Panel Causality testresults confirmed a one-way causality from Portfolio Investment (PRF) to Gross Fixed CapitalFormation (GFC) and a bidirectional causality between GFC and Gross Domestic Product(GDP), GFC and Foreign Direct Investment (FDI), GFC and Foreign Loans (LNS) in theshort-term. Long-term relationships between the variables were tested with the DOLSMGestimator. According to the test results; a 1% rise in FDI decreases GFC by 0.59 %, a 1%rise in GDP increases GFC by 0.45 %, a 1% rise in PRF increases GFC by 1.68 %, and a1% rise in LNS boosts GFC by 2.12 %.