Economic policy uncertainty and foreign direct investment: Evidence from China

Han Gao, Wenbin Chen, Jie Li and Tianhang Zhou

Structural Change and Economic Dynamics, 2024, vol. 70, issue C, 178-191

Abstract: This paper examines the influence of economic policy uncertainty (EPU) on foreign direct investment (FDI). By utilizing a comprehensive dataset spanning 264 Chinese cities from 2005 to 2014, we uncover a negative relationship between EPU and FDI inflows. In addition, through heterogeneity tests, we demonstrate that this effect is more pronounced in cities characterized by a higher degree of marketization, stronger financial development, and a larger proportion of industrial production. Moreover, we observe that FDI exhibits greater sensitivity to EPU fluctuations following the 2008 Global Financial Crisis. To provide an explanation for these findings, we propose an open-economy model incorporating uncertainty.

Keywords: Uncertainty; Economic policy; Foreign direct investment (search for similar items in EconPapers)
JEL-codes: D80 F21 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:70:y:2024:i:c:p:178-191

DOI: 10.1016/j.strueco.2024.01.014

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