FDI, growth and trade partisan conflict in the US: TVP-BVAR approach

Yifei Cai () and Angeliki Menegaki ()
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Yifei Cai: The University of Western Australia
Angeliki Menegaki: Agricultural University of Athens

Empirical Economics, 2021, vol. 60, issue 3, No 10, 1335-1362

Abstract: Abstract This paper utilizes time-varying parameters Bayesian vector auto-regression model with stochastic volatility approach to investigate the time-varying dynamic relation between FDI, growth and trade partisan conflict in the US. The empirical results confirm that an increase in trade partisan conflict will deter FDI inflows to the US and discourage economic activities. Besides, we also examine the responses of equity investment, intra-company loans and reinvestment earnings given trade partisan conflict shock. In a robustness check, we consider different measurements on FDI and other control variables. The negative role of a trade partisan conflict shock is not altered, indicating the robustness of the findings. Moreover, trade partisan conflicts like GATT, Omnibus Bill Veto, NAFTA, Bush versus Kerry, the financial crisis and TPP are key factors which affect the dynamics. The US government should remedy the negative impacts of trade policy conflict on FDI inflows and economic growth.

Keywords: Trade partisan conflict; FDI; Growth; Time-varying; Bayesian VAR (search for similar items in EconPapers)
JEL-codes: C11 E62 F21 F3 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s00181-019-01795-1

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