Impact of Economic Policy Uncertainty on FDI Inflows: Evidence from India

Aishanee Sinha and Taniya Ghosh

A chapter in Recent Developments in Asian Economics International Symposia in Economic Theory and Econometrics, 2021, vol. 28, pp 157-167 from Emerald Group Publishing Limited

Abstract: This chapter examines the impact of uncertainty about economic policy on the foreign direct investment (FDI) inflows in India. Uncertainty over domestic and international economic policy adversely affects the international flow of goods, services, and investment. FDI is one of the most stable type of capital flows. FDI is considered to be more sensitive to policy uncertainty because higher fixed costs are involved in FDI than other types of capital flows. The authors estimate the impact of economic policy uncertainty on FDI inflows in the short and long run for India. The results of this study show that the policy uncertainty has a higher impact on FDI inflows in the long run than in the short run. It is known that FDI and GDP growth are positively related. Thus to attract more FDI inflows it is desirable to have predictable policies.

Keywords: Foreign direct investment; economic policy uncertainty; uncertainty; India; autoregressive distributed lag; trade openness; E52; E58; E62; F21; F23; F31 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:isetez:s1571-038620210000028009

DOI: 10.1108/S1571-038620210000028009

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