This study intends to investigate the effect of economic freedom on foreign portfolio investments
in the case of the Caricom Single Market and Economy. For this purpose, this study has used data
from 2012 to 2016. The results of the stationarity test showed that data of all variables considered
in the study are stationary at level. Moreover, the fixed effect model better modelled the data as
suggested by the results of the Hausman test. Based on the results of the fixed effect models,
economic freedom has a significant and positive effect on the total foreign portfolio investments.
Therefore, an increase in the economic freedom among the Caricom Single Market and Economy
member countries will attract more investors to invest in their country stocks and debt instruments.
Furthermore, for robustness of the results, the study has also estimated a separate regression model
for foreign debt portfolio investments and foreign equity portfolio investments which also support
the baseline regression results and showed a significant and positive effect of economic freedom
on both foreign debt and foreign equity portfolio investments. This study suggests that the member
countries of the Caricom Single Market and Economy improve their economic freedom which will
attract more foreign investors to invest in their countries.
