Foreign market uncertainty and corporate investment: Evidence from China
Ye He,
Jilong Chen,
Shuxin Fan and
Xiao Zhang
Economic Modelling, 2025, vol. 152, issue C
Abstract:
This paper examines how uncertainty from foreign markets influences corporate investment. By combining the World Uncertainty Index with firm-level export data, we construct a measure of firm-specific foreign market uncertainty and find a negative relationship between foreign market uncertainty and investment. Using detailed firm-level data, we further explore the transmission channels through which foreign uncertainty affects investment. We show that heightened uncertainty reduces investment by tightening financial constraints and increasing firms’ exposure to external risks, thereby causing delays in investment decisions. The effects are more pronounced among smaller firms, firms with higher capital intensity, and firms that rely more on emerging markets. Moreover, we find that although foreign market uncertainty reduces overall investment levels, it improves investment efficiency by reducing overinvestment. Our finding shows how foreign market uncertainty transmits across international borders, shaping domestic capital accumulation and investment efficiency.
Keywords: Investment; Foreign market uncertainty; Export (search for similar items in EconPapers)
JEL-codes: G30 G31 G32 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:152:y:2025:i:c:s0264999325002172
DOI: 10.1016/j.econmod.2025.107222
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