Foreign portfolio investment – economic growth nexus: Directed acyclic graphs analysis

In this paper, inductive causal inference patterns among foreign portfolio investment, economic growth, and several other economic, social and institutional factors are constructed. In doing so, we attempt to shed light on both the direct and indirect causation between these variables, and also distinguish between different causal patterns for developed and developing countries. To do so, using the data from the calendar year 2016, cross section of 33 developing and 23 developed countries is examined. Resulting Directed Acyclic Graphs (DAGs) reveal that economic growth follows foreign portfolio investment in developed countries, whereas there is an ambiguous relationship between economic growth and foreign portfolio investment through financial development in developing economies