Working Paper: NBER ID: w29687
Authors: Caroline Jardet; Cristina Jude; Menzie D. Chinn
Abstract: 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.
Keywords: Foreign Direct Investment; Uncertainty; Global Factors; Heterogeneous Sample
JEL Codes: F21; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| uncertainty (D89) | FDI inflows (F21) |
| global uncertainty (F69) | FDI inflows (F21) |
| host country uncertainty (F29) | FDI inflows (F21) |
| financial openness (F30) | uncertainty (D89) |
| uncertainty (D89) | mergers and acquisitions (G34) |
| uncertainty (D89) | greenfield investment projects (F21) |