THE NEXUS BETWEEN UNCERTAINTY AND FOREIGN DIRECT INVESTMENT FLOWS TO G20 MEMBER COUNTRIES

Muhammet Daştan, Kerem Karabulut and Ömer Yalçınkaya
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Muhammet Daştan: Department of Economics, Ağrı İbrahim Çeçen University
Kerem Karabulut: Department of Economics, Atatürk University
Ömer Yalçınkaya: Department of Economics, Atatürk University

Ekonomski pregled, 2022, vol. 73, issue 5, 717-738

Abstract: The main objective of this study is to examine the link between global economic, political, and geopolitical uncertainties and FDI flows to G20 member countries over the 1996-2018 period. Unlike most of the previous studies, this study employs reasonable uncertainty indexes, namely, the Economic Policy Uncertainty (EPU) index, the World Uncertainty Index (WUI) for economic/political uncertainty rather than the volatility or election indicators. The study also uses the Geopolitical Risk index as a proxy for geopolitical uncertainty, and thereby it not only focuses on economic/ political uncertainty but also considers the geopolitical uncertainty to provide a more comprehensive picture of uncertainty. Findings obtained from the panel data analysis indicate that heightened uncertainty in the global economic/political and geopolitical environment deters FDI flows to G20 member countries. It is also found that there is a unilateral causality running from uncertainty to FDI inflows. Considering these empirical findings, policymakers in G20 economies should provide a stable economic/political and geopolitical environment to attach FDI inflows, which have a key role in stimulating economic growth and development.

Keywords: Foreign Direct Investments; Economic Policy Uncertainty; Geopolitical Uncertainty; Panel Data Analysis; G20 Member Countries (search for similar items in EconPapers)
JEL-codes: C33 D80 F21 F51 G15 (search for similar items in EconPapers)
Date: 2022
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