Role of uncertainty for FDI inflow: Panel econometric analysis of selected high-income nations

Abstract

The purpose of this study is to evaluate the influence of economic policy uncertainty in determining the FDI inflow for 19 economies with higher incomes between 2000 and 2021. Using the panel Ardl approach, the data were examined. The dynamic fixed effect approach was selected for assessing the necessary set of hypotheses based on the significance of the Hausman test. Increasing levels of economic policy uncertainty, exchange rate, and inflation rate discourage foreign investors from investing in the host country, whereas trade openness and real growth rate increase investors’ confidence in increasing FDI inflow in the host country. The economic implications of the study include the political stability of the host country and the uniformity of government policies, particularly in favor of international investors. This study contributes to the existing body of knowledge on FDI by examining the long-term and short-term effects of uncertainty for the high-income group. The findings of the study apply to higher-income economies. In the future, comparative time-series analysis may be used to assess studies on an individual or regional basis for other groups as well.

Keywords:

• Economic Policy Uncertainty
• FDI Inflow
• Exchange Rate
• Inflation
• Trade Openness
• Growth Rate

JEL Classification:

• C33
• D81
• E60
• O50
• P44

Acronyms list

FDI – Foreign Direct Investment

EPU – Economic Policy Uncertainty

MG – Mean Group

PMG – Pooled Mean Group

DFE – Dynamic Fixed Effect

ARDL – Autoregressive distributed Lag

EXR – Exchange Rate

INFR – Inflation Rate

TOP – Trade Openness

RGR – Real Growth Rate

WDI – World Development Indicators

GDP – Gross Domestic Product

Availability of data and material

The datasets used and/or analyzed during the current study have been taken from the world development index (WDI) and economic policy uncertainty (EPU) websites and made available from the corresponding author on reasonable request.

Acknowledgements

We thank all editorial board members and anonymous reviewers for reviewing and improving the paper through their valuable suggestions.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Authors contributions

MAH: Conceptualization, Writing the original draft, Data collection, Data analysis, and Designing the methodology, ZB: Supervision and Conceptualization, MUA: Data analysis, Editing, and Revision, NY: Methodology, Revision, and Proofreading.

Ethics statement

This material is the authors’ original work, which has not been previously published elsewhere. The paper is not currently being considered for publication elsewhere.

Sincerely,

Additional information

Funding

The authors received no financial support for the research, authorship, and/or publication of this article.