Are Foreign Institutional Investors Good for Emerging Markets?

19 Pages Posted: 7 Oct 2004

See all articles by Michael Frenkel

Michael Frenkel

WHU Otto Beisheim Graduate School of Management

Lukas Menkhoff

German Institute for Economic Research (DIW Berlin); Humboldt University of Berlin - Faculty of Economics

Abstract

Portfolio flows channelled via institutional investors were the most dynamic capital flows to emerging markets in the 1990s. We use an asymmetric information framework to derive five propositions about the effects of the activities of foreign institutional investors on emerging markets. We confront these propositions with existing empirical evidence on the financial sector of emerging markets and conclude that institutional investors do not automatically generate benefits for emerging markets. Therefore, capital account and financial market liberalisation needs to be accompanied by careful regulation.

Suggested Citation

Frenkel, Michael and Menkhoff, Lukas, Are Foreign Institutional Investors Good for Emerging Markets?. The World Economy, Vol. 27, No. 8, pp. 1275-1293, August 2004. Available at SSRN: https://ssrn.com/abstract=597016

Michael Frenkel (Contact Author)

WHU Otto Beisheim Graduate School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany
0049 261 6509281 (Phone)
0049 261 6509279 (Fax)

Lukas Menkhoff

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Humboldt University of Berlin - Faculty of Economics ( email )

Spandauer Strasse 1
Berlin
Germany

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