Determinants of foreign portfolio investment and its effect on the economy of Uganda

Abstract

This study aimed at examining the determinants of foreign portfolio investment in Uganda. Specifically, the study aimed at identifying the predictors of foreign portfolio investment using explanatory variables total reserves, foreign direct investment and real interest rate. Time series data obtained from the World Bank development indicators data bank from 2000- 2018 were used to analyze the relationship between foreign portfolio investment and the explanatory variables specified above. The data obtained facilitated the estimation of quantitative relationship among the variables. The model was estimated by ordinary least squares (OLS) to obtain their impact on foreign portfolio investment. Multiple linear regression function model was used in the study since the co-integration tests supported the alignment of the variables in linear fashion. Results indicated that total reserves had a positive coefficient and was significant in determining the rate of foreign portfolio investment therefore improving total reserves improves foreign portfolio investment. Also, foreign direct investment were significant in determining foreign portfolio investment though it had a negative coefficient. Real Interest rate were not significant at 5% level thus implying they had no influence on foreign portfolio investment. The government and policy makers are advised to strengthen policies that are geared to encourage exports and reduce imports such as promoting domestic investment