Abstract

The study has evaluated the volume of cross-border portfolio investment from developing economies and top major partners, using gravity model. Panel data set is used on bilateral gross cross-border investment flows between 37 developing countries and 79 host countries, which are the top five in the world from 2001 and 2012. The positive and significant coefficient on GDP per capita in a destination country can explain a significant part of Lucas paradox. It supported the reason why developing capital is invested outside the region. The results showed statistically insignificant effect of bilateral trade in lagged form on asset holdings. There is a high correlation between GDP per capita in source country and market capitalization of listed companies in the source countries. The significant positive coefficient of GDP per capita of source economies in OLS suggested that richer economies are major sources of portfolio investment Geographical proximity exerts a significant positive influence on the assets that investors may diversify their portfolios.

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