Foreign investment, return volatility, and economic growth in emerging markets

THIS DISSERTATION EXAMINES THE IMPACT OF FOREIGN INVESTMENT IN EMERGING MARKETS ALTHOUGH THE EFFECT OF FOREIGN INVESTMENT HAS BEEN CONSTANTLY EXAMINED IN VARIOUS ECONOMIC AND FINANCIAL LITERATURES OUR APPROACH IS UNIQUE IN TWO WAYS, FIRSTLY, WE LOOK AT THE ISSUE OF FOREIGN INVESTMENT FROM A FIRM-LEVEL PERSPECTIVE AND THUS ARE ABLE TO SEE THE ADVANTAGES AND DISADVANTAGES WHICH FOREIGN INVESTMENT BRINGS UPON INDIVIDUAL FIRMS SECONDLY, WE DEPART FROM EXISTING LITERATURE. WHICH LOOKS AT THE RESTRICTIONS ON FOREIGN OWNERSHIP, BY STUDYING THE IMPLICATIONS OF ACTUAL FOREIGN OWNERSHIP WE ALSO REEXAMINE THE GROWTH-FDL LINK IN THE CONTEXT OF FINANCIAL LIBERALIZATION. THE FIRST ISSUE (IN CHAPTER 2) CONCERNS WITH THE EFFECT OF LARGE FOREIGN OWNERSHIP (LFO) ON FIRM-LEVEL STOCK RETURN VOLATILITY IN 32 EMERGING MARKETS. WE FIND A NEGATIVE RELATION BETWEEN LFO AND VOLATILITY WE SHOW THAT THE NEGATIVE RELATION BETWEEN LFO AND STOCK RETURN VOLATILITY IS CONSISTENT WITH THE CONJECTURE ON THE STABILIZING ROLE OF FOREIGN DIRECT INVESTMENT (FDI) IN DEVELOPING ECONOMIES. THE NEXT TOPIC WHICH IS STUDIED IN CHAPTER 3, PROPOSES ANOTHER REASON FOR THE NEGATIVE RELATION BETWEEN LFO AND STOCK RETURN VOLATILITY THE CHAPTER FINDS THAT THE NEGATIVE RELATION BETWEEN LARGE FOREIGN OWNERSHIP AND STOCK RETURN VOLATILITY EXISTS IN GOOD CORPORATE GOVERNANCE ENVIRONMENTS BUT DISAPPEARS IN BAD CORPORATE GOVERNANCE ENVIRONMENTS.THE FINAL TOPIC ANALYZES THE RELATION BETWEEN FOREIGN DIRECT INVESTMENT AND REAL GROWTH RATE OF PER CAPITA GDP (CHAPTER 4), IN GENERAL. WE FIND THAT THE RATIO OF FDL FLOWS TO TOTAL GOP ITSELF IS NOT RELATED TO ECONOMIC GROWTH FOR THE SAMPLE OF EMERGING MARKETS, EVEN THOUGH WE CONSIDER DIFFERENT MODEL SPECIFICATIONS. WE FIND, HOWEVER, FDI'S INTERACTION WITH TRADE OR FINANCIAL DEVELOPMENT OF THE HOST COUNTRY IS POSITIVELY RELATED TO ECONOMIC GROWTH IN SOME MODELS THE RESULTS CONFIRM THE IMPORTANCE OF THE ABSORPTIVE CAPACITY OF THE HOST COUNTRY FOR THE SUCCESS OF FDI, PROVIDING SUPPORT FOR RECENT STUDIES ON THIS AREA