The Effect of Economic Policy Uncertainty on Foreign Direct Investment in the Era of Global Value Chain: Evidence from the Asian Countries

Bohan Zhang, Jianfu Ma (), Muhammad Asghar Khan, Valentina Repnikova, Kseniia Shidlovskaya, Sergey Barykin and Muhammad Salman Ahmad
Additional contact information
Bohan Zhang: School of Engineering, University of Bristol, Bristol BS81TH, UK
Jianfu Ma: School of Community for Chinese Nation and Pakistan Centre, North Minzu University, Yinchuan 750021, China
Muhammad Asghar Khan: School of Economics and Management, Panzhihua University, Panzhihua 617000, China
Valentina Repnikova: Department of Entrepreneurship and Logistics, Plekhanov Russian University of Economics, 117997 Moscow, Russia
Kseniia Shidlovskaya: Department of Economics, St. Petersburg Mining University, 199106 St. Petersburg, Russia
Sergey Barykin: Graduate School of Service and Trade, Peter the Great St. Petersburg Polytechnic University, 195251 St. Petersburg, Russia
Muhammad Salman Ahmad: School of Tourism, Qujing Normal University, Qujing 655011, China

Sustainability, 2023, vol. 15, issue 7, 1-21

Abstract: The global value chain has promoted foreign direct investments in emerging markets. Not only resources but also public policies can affect the inflows or outflows of foreign direct investments (FDI). This study investigates the effect of economic policy uncertainty on net foreign direct investment inflows in 48 Asian countries. We use the panel dataset from different sources from 1995 to 2020. Our core dependent variable is net foreign direct investment inflows, and the explanatory variable is economic policy uncertainty. The study’s control variables include trade, GDP per capita, GDP growth, population, financial development, inflation, and employment. We use the generalized system method of moment (SYS_GMM). Furthermore, the robustness of our empirical results is checked by using the different proxy variables of policy uncertainty. Our results confirm the negative effect of policy uncertainty on foreign direct investment inflows in 48 Asian countries. Our results show that foreign investment inflows are more sensitive than domestic investment. The influence of domestic and global uncertainty on inward FDI is greater than domestic investment. Furthermore, the interaction effect of financial development (FD) shows that FD does not affect mitigation of the negative impact of global economic policy uncertainty on foreign investment inflow. In contrast, FD mitigates the adverse effects of domestic policy uncertainty on foreign and domestic investment. The findings imply that policies need to be attractive, effective, and transparent to woo FDI to the emerging markets.

Keywords: FDI; financial development; global value chain; GMM; policy uncertainty; Asia (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.mdpi.com/2071-1050/15/7/6131/pdf (application/pdf)
https://www.mdpi.com/2071-1050/15/7/6131/ (text/html)

Related works:
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:gam:jsusta:v:15:y:2023:i:7:p:6131-:d:1114492

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().