Foreign Direct Investment under Uncertainty: Evidence from a Large Panel of Countries
We examine the effect of uncertainty on foreign direct investment inflows for a heterogeneous sample of advanced, emerging market and developing countries over a 25 year long (pre-Covid) sample. Using a push-pull framework, and controlling for both global and local factors, we find policy uncertainty has discernable and significant effects on inflows, but those effects vary in strength and direction between different groups of countries. Moreover, it is not host country uncertainty that seems to matter the most, but rather global uncertainty. Additionally, we find that high levels of uncertainty matter disproportionately. Finally, financial openness accentuates the impact of uncertainty for emerging market and developing countries.
We would like to thank seminar participants at the Banque de France. The views expressed do not necessarily reflect those of the Banque de France, the Eurosystem, or the National Bureau of Economic Research.
Menzie D. Chinn
Chinn wrote part of this paper while serving as a consultant to Banque de France on topics aside from this paper's subject.