FDI vs. FPI: The Role of Ageing

Abstract

In this paper, we examine how the future age structure of the nation helps explaining the current ratio of FPI over FDI in a country’s foreign asset stock. Firstly, we present a theoretical foundation of the relation and then we test it empirically. Theoretical foundations are based on the theoretical model of Goldstein and Razin (2006). The ratio of FPI over FDI is modelled by using fixed effects unbalanced panel data and Arellano-Bond dynamic panel GMM estimators.

The results suggest that the future age structure of the nation has significant effect in explaining the current ratio of FPI over FDI in a country’s foreign asset stock.

Keywords: International Capital Flows, Demography, Capital Mobility, FDI, Portfolio Investment

JEL Classification: E2, F21, G15, J1