The relationship between long-term portfolio investments and growth in the context of asset characteristics and development level

Abstract

This study investigates the linkage between portfolio investment and economic growth in 18 developed and 27 developing countries. Furthermore, it compares and analyzes interest-bearing and non-interest-bearing assets and the economic development level. The results of our analysis show that long-term portfolio investment is positively associated with economic growth in developing countries. Long-term portfolio investment through non-interest-bearing assets contribute more to economic growth in developing countries. However, stocks and long-term bond portfolio investment are unrelated to economic growth in developed countries. Moreover, capital accumulation positively affects growth in developing and developed countries, but trade openness decreases growth in developing countries. Our policy recommendation is for the relation between long-term portfolio investment and economic growth to be evaluated by the characteristics of their assets, instead of a general framework, and for decision makers to adapt their policies accordingly. In addition, non-interest-bearing portfolio investment is encouraged for better growth performance in developing countries.