Are Foreign Institutional Investors Good for Emerging Markets?
Article first published online: 27 SEP 2004
The World Economy
Volume 27, Issue 8, pages 1275–1293, August 2004
How to Cite
Frenkel, M. and Menkhoff, L. (2004), Are Foreign Institutional Investors Good for Emerging Markets?. World Economy, 27: 1275–1293. doi: 10.1111/j.1467-9701.2004.00646.x
- Issue published online: 27 SEP 2004
- Article first published online: 27 SEP 2004
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.