Working Paper: NBER ID: w27870
Authors: Shawn Cole; Martin Melecky; Florian Mlders; Tristan Reed
Abstract: There is interest in impact investing, the idea of deploying capital to obtain both financial and social returns. But private financial returns are only possible if capital markets are not perfectly integrated, so profit opportunities still exist in certain markets. This proposition is put to the test by examining every equity investment made by one of the largest and longest-operating impact investors across 130 emerging market and developing economies. Since 1961 this portfolio has performed comparably to public and private equity in the United States, though it has underperformed since 2010. Investments in larger economies have higher returns, and returns decline as banking systems deepen and countries relax capital controls. These results are consistent with a core thesis of impact investing that some eligible markets do not receive sufficient investment capital.\n
Keywords: Impact Investing; Emerging Markets; Financial Returns; Social Returns
JEL Codes: G15; O1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Cumulative annualized real GDP growth (O49) | Investment performance (G11) |
| Local currency depreciation (F31) | Investment performance (G11) |
| Local inflation (controlling for depreciation) (E31) | Investment performance (G11) |
| Improvements in sovereign risk (F34) | Investment performance (G11) |
| Population size of EMDEs (O15) | Investment performance (G11) |
| Macroeconomic factors (E66) | Investment performance (G11) |
| Market size and financial system development (O16) | Investment performance (G11) |