Capital returns and currency value: The contrasting key drivers of foreign portfolio investments in Sub-Saharan African economies

Abstract

In this study, we investigate the role of capital returns and currency value in determining foreign portfolio investments, with a focus on Sub-Saharan African economies. The empirical results from the auto-regressive distributed lag and vector error correction models reveal significant positive impact of capital returns and significant negative impact of currency value, indicating that the variables play contrasting roles in driving foreign portfolio investments. Financial openness also exerts a positive impact on the investments, but not so significant to qualify as a key driver of foreign portfolio investments. Inflation, however, tends to impair the investments. Adjustment speed of the investments is also found to be low.

Keywords

• Capital returns
• Currency value
• Portfolio investments
• Developing economies