The effect of disaggregated country risk on foreign portfolio investment flows in South Africa

Muzindutsi, Paul-Francois (author), Govender, Tristan Kyle (author), Nkwanyana, Nokwanda (author), Zulu, Sanelisiwe (author), Myeni, Nondumiso (author)

This study explores the relationship between disaggregated country risk and foreign portfolio investment (FPI) flows in South Africa, focusing on both the long-run and short-run effects of economic, financial, and political country risk measures on net foreign purchases of shares (NFPS) and net foreign purchases of bonds (NFPB) during the period from 1995 to 2019. We employed autoregressive distributed lag (ARDL) and nonlinear autoregressive distributed lag (NARDL) models to assess the relationships between the variables. The results indicate that all disaggregated country risk measures have a long-run effect on NFPS and NFPB, and the impacts of these risks are asymmetric. Specifically, low levels of economic risk are associated with a decline in foreign equity flows and an increase in foreign bond investments in the long run, while high levels of economic risk correlate with a rise in both foreign equity and bond investment flows. Conversely, both high and low levels of financial and political risk lead to a decrease in NFPS and NFPB. Notably, financial risk was the only country risk measure found to significantly impact NFPB in the short run. The findings highlight the importance for policymakers to understand these complex relationships in order to implement strategies that foster a mutually beneficial economic, political, and financial climate in South Africa, encouraging FPI while maintaining sovereignty.

• Language: English
• Keywords: country risk, political risk, financial risk, economic risk, net foreign portfolio investment
• Work type: Article
• Typology: 1.01 - Original Scientific Article
• Organization: EF - School of Economics and Business
• Publication status: Published
• Publication version: Version of Record
• Year: 2025
• Number of pages: Str. 130-140
• Numbering: Vol. 27, iss. 3, article no. 1
• PID: 20.500.12556/RUL-173284
• UDC: 330.3
• ISSN on article: 2335-4216
• DOI: 10.15458/2335-4216.1356
• COBISS.SI-ID: 248419587
• Publication date in RUL: 15.09.2025

Record is a part of a journal

• Title: Economic and business review
• Publisher: Ekonomska fakulteta
• ISSN: 2335-4216
• COBISS.SI-ID: 268649216

Licences

• License: CC BY 4.0, Creative Commons Attribution 4.0 International
• Link: http://creativecommons.org/licenses/by/4.0/
• Description: This is the standard Creative Commons license that gives others maximum freedom to do what they want with the work as long as they credit the author.

Secondary language

• Language: Slovenian
• Keywords: Južna Afrika, ekonomska politika, investicije, deželno tveganje, South Africa, economic policy, investments, country risk