FDI and FII

Ann Raymond, A Study On The Determinants And Volatility Of Migrant Remittances To

India, MSc Dissertation, MSE May 2014.
B L Pandit and N S Siddharthan (2009), Portfolio Investment: An Inter-firm
Analysis, In B L Pandit and N S Siddharthan, Changing Policy Regimes and Corporate
Performance, Oxford University Press, (2009), Delhi, Chapter 8, 135-151.

Among the foreign financial investors registered with SEBI as FIIs are, pension funds, mutual
funds, investment trusts, insurance or reinsurance companies, endowment and university funds
and charitable trusts and societies.

What has been observed is that while the overall capital inflow through the FIIs has been high,
FII investments across firms have been quite dissimilar. The objective of this study is to analyse
the determinants of FII investments in firms in high-tech corporate sectors like automobiles,
drugs and pharmaceuticals, IT software and IT hardware for the period 2000 to 2004.

As per the theory of international portfolio investment the basic motivation for any investor
including the FIIs for investing in foreign equity is to diversify their portfolio, reduce the
diversifiable risk and earn higher returns.
Essentially this is a two-step decision. The first step is the choice of the country. Having decided
on the host country, the FII has to decide about the portfolio composition or portfolio choice
within the country concerned. In taking the first step, since international investments involve
returns in foreign currency, the same have to be factored in the analysis.

We argue in this paper that the capacity of the Indian firm to attract investment through FIIs will
depend on its own salience, drive for modernisation and its international exposure.

We capture salience through three variables: Firm size as represented by sales turnover, equity
participation by foreign promoters/partners (FDI), and advertisement intensity representing
product differentiation and sales promotion.

We suggest that multinational affiliation as seen from FDI and joint ventures is an important
feature that influences both the salience and unique risk characteristics of the firms.

Where, i refers to the firmi and t to time. FII is foreign institutional investments, foreign
institutional equity as a percentage of total equity (paid-up) capital of the firm. SR is the stock
return FDI is foreign direct investments, is a dummy variables that takes the value 1 for firms
where foreign promoters equity is more than 25 per cent of the total equity and 0 otherwise.
SALES is the total sales turnover of the firm. ADS is advertisement expenditures as a ratio of
sales turnover. XS is exports to sales turnover ratio. MS is imports to sales turnover ratio. TP is
technology payments to sales ratio, it refers to payments made to purchase technology and
royalty payments. FPS is payments made in foreign exchange excluding imports and technology
payments. They mainly refer to expenditures relating to setting-up of sales offices, branches,
acquisitions of foreign firms and other related expenditures made overseas. PRM is the profit
margin, gross profits to sales ratio.

Andrade, Sandro C. and Vidhi Chhaochharia, (2010), “Information

Immobility and Foreign Portfolio Investment”, The Review of Financial
Studies / v 23 n 6,2429 – 2463.
We examine how residents of the United States allocate their stock portfolios internationally.

We conjecture that, relative to world investors, U.S. investors were initially better informed
about countries in which there was more U.S. FDI.

The assumption that investors obtain enhanced information after FDI takes place is
central to the FDI theory
We find that a country’s weight in the U.S. FDI position in 1990 explains that country’s weight
in the U.S. stock portfolio from 2001 to 2006. Moreover, a change in a country’s weight in the
U.S. FDI position from 1980 to
1990 helps predict the change in that country’s weight in the U.S. FPI position from 1994 to
2006

In contrast to most of the empirical literature in international portfolio choice, we show that our
empirical results hold not only for U.S. foreign holdings but also for holdings of the G6 (G7
minus Italy) source countries collectively. The weight of a destination country in a source
country’s 1990 FDI position explains the weight of that country in the source country’s stock
portfolio in the 2001–2006 period.
Shen, Chung-Hua, Chien-Chiang Lee and Chi-Chuan Lee (2010), “WHAT
MAKES INTERNATIONAL CAPITAL FLOWS PROMOTE ECONOMIC
GROWTH? AN INTERNATIONAL CROSS-COUNTRY ANALYSIS”,
Scottish Journal of Political Economy, Vol. 57, No. 5, 515-546.

According to the past literature, the reason for the lack of conclusive evidence between FDI (or
FPI) and economic growth is that little consideration has been given to the related factors that
influence the relationship between the two. Thus, in our mind the issue regarding the association
between the two concepts is not settled. Our study contributes to resolve this unsettled issue.

We implement a wider range of panel data that cover 80 countries from 1976 to 2007 and
examine an extensive array of interaction terms, as opposed to a smaller set of countries and a
shorter sample.
where i = 1,---,N, t= 1,---, T; N=80 is the number of countries; and T is the sample period
covering 1976 to 2007. Table 1 lists the 80 selected countries. The dependent variable,
GROWTH, is proxied by real per capita GDP growth. When only equation (1) is considered, it is
referred to as the ‘benchmark model’, but when equations (1) and (2) are simultaneously
considered, they are referred to as the ‘extended models’. The term ICF, denoting international
capital flows, is proxied by FDI or FPI. The control variables are the investment ratio
(INVESTMENT), the inflation rate (INFLA), government consumption expenditure/ GDP
(GCONSUMP), the initial amount of human capital as proxied by the initial-year level of the
average years of the male secondary schooling (SCHOOLING), and the log of initial real GDP
per capita (Y76)