Determinants of foreign direct investment inflows: The role of economic policy uncertainty

Canh Nguyen, Binh Nguyen Thanh, Thanh Su and Christophe Schinckus

International Economics, 2020, issue 161, 159-172

Abstract: This article investigates the impacts of the domestic economic policy uncertainty (EPU) and the World Uncertainty (WUI) on net foreign direct investment inflows (FDI) for 21 economies over the period 2003–2013. By using the sequential (two-stage) technique of linear panel data models, this study provides two major results. First, the growth rate of domestic EPU adversely affects FDI inflows. Second, when combined with the domestic EPU level, the World Uncertainty (WUI) that includes the economic policy uncertainty measure of 143 countries has a positive impact on the FDI inflows into the host country. The findings suggest that although domestic economic policy uncertainty has an adverse effect on FDI inflows; an increase in the global (world) economic policy uncertainty could increase FDI inflows into the country. We explain this systematic aversion to global uncertainty through the existence of a behavioural bias (anchor and adjustment) illustrating the investors’ sensitivity to their ability to associate a frame to uncertainty.

Keywords: FDI inflows; Domestic and global economic policy uncertainty; Sequential (two-stage) estimation (search for similar items in EconPapers)
JEL-codes: D81 E02 F21 (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations: View citations in EconPapers (27)

Downloads: (external link)
https://www.sciencedirect.com/science/article/pii/S211070171930040X (text/html)

Related works:
Journal Article: Determinants of foreign direct investment inflows: The role of economic policy uncertainty (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cii:cepiie:2020-q1-161-12

Access Statistics for this article

More articles in International Economics from CEPII research center Contact information at EDIRC.
Bibliographic data for series maintained by ().