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Foreign direct investment and stock market development: Evidence from a “new” emerging market

Athanasios Tsagkanos (Department of Business Administration, University of Patras, Campus Rio, Patras, Greece)
Costas Siriopoulos (College of Business, Zayed University, Abu Dhabi, United Arab Emirates)
Konstantina Vartholomatou (Department of Business Administration of Food and Agricultural Enterprises, University of Patras, Agrinio, Greece)

Journal of Economic Studies

ISSN: 0144-3585

Article publication date: 7 January 2019

1596

Abstract

Purpose

The purpose of this paper is to examine two novel theories that concern the relationship between stock market development (SMD) and foreign direct investment (FDI). The authors focus on Greece that was demoted to the emerging market category in 2013–2014 in the international lists.

Design/methodology/approach

This study is based on the period 1988–2014 that includes the sub-periods 1988–2001 (emerging market) and 2002–2014 (developed market). The authors adopt cointegration methods examining, on the one hand, if the relationship between SMD and FDI is positive or negative and, on the other hand, if it is long run or short run. The authors complete the analysis using the Markov Switching regression model for the test of robustness.

Findings

The results exhibit a weak positive and symmetric long-run relationship for the full period. In the first sub-period, the relationship is strong but in the second sub-period it is not significant. The results are confirmed by the Markov Switching regression model.

Originality/value

The precise definition of a theoretical framework that is tested by a compact empirical methodology leads to a novel suggested policy that will upgrade the Greek market to developed market as soon as possible.

Keywords

Acknowledgements

The authors thank an anonymous reviewer for his (or her) extremely helpful comments and suggestions that improved significantly the work. The authors of this paper have not made their research data set openly available. Any enquiries regarding the data set can be directed to the corresponding author.

Citation

Tsagkanos, A., Siriopoulos, C. and Vartholomatou, K. (2019), "Foreign direct investment and stock market development: Evidence from a “new” emerging market", Journal of Economic Studies, Vol. 46 No. 1, pp. 55-70. https://doi.org/10.1108/JES-06-2017-0154

Publisher

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Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited

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