Portfolio Flows, Foreign Direct Investment, Crises

Abstract

The goal of the paper is to analyze how financial and economic crises affect the relation between capital flows and their determinants. We develop a model of foreign portfolio investment (FPI) and foreign direct investment (FDI), and apply it to Turkey using an endogenous break analysis and accounting for country risk. We identify two breakpoints that correspond to two crises dates. Our results show changes in the sign and/or coefficient of a number of determinants in both types of investment and thus suggest that analyses based on the assumption of parameter constancy may lead to misleading results.capital flows, crises, structural changes