Does bilateral political relations affect foreign direct investment?

Figures & data

Table 1. Descriptive statistics for BPR, FDI inflows and outflows.

	BPR	FDI inflows	FDI outflows
Mean	−1.217	0.395	0.017
Median	−1.400	0.353	0.003
Maximum	2.900	1.282	0.243
Minimum	−5.000	0.050	−0.384
Standard Deviation	2.698	1.825	0.587
Skewness	−0.003	1.425	0.797
Kurtosis	1.375	6.618	17.333
Jarque-Bera	19.685***	158.198***	1559.693***

Note: *** denotes significance at the 1% levels.

The unit of FDI inflows and outflows is one billion US dollars.

Figure 1. Trend of BPR, FDI inflows and outflows.

Table 2. Unit root test results.

	Levels			First differences
Series	ADF	PP	KPSS	ADF	PP	KPSS
BPR	−1.400(1)	−1.496(3)	0.885[1]***	−9.477(0)***	−9.822(5)***	0.145[7]
FDI inflows	−2.363(2)	−2.265(4)	0.849[2]***	−17.830(1)***	−47.229(5)**	0.166[6]
FDI outflows	−1.868(2)	−2.747(2)	0.784[1]***	−7.324(3)***	−10.926(6)***	0.178[5]

Note: The number in parenthesis indicates the lag order selected based on the recursive t-statistic, as suggested by Perron (1989). The number in the brackets indicates the truncation for the Bartlett Kernel as suggested by the Newey-West test (1987).

*** and ** denote significance at the 1% and 5% levels, respectively.

Table 3. Full-sample Granger causality tests.

	Bootstrap LR Test
Tests	Statistics	p-values
FDI inflows do not Granger cause BPR	0.226	0.616
BPR do not Granger cause FDI inflows	0.339	0.713
FDI outflows do not Granger cause BPR	0.461	0.765
BPR do not Granger cause FDI outflows	1.991*	0.098
TB does not Granger cause FDI inflows	1.064	0.378
LC does not Granger cause FDI inflows	0.530	0.224
TB does not Granger cause FDI outflows	4.854	0.745
LC does not Granger cause FDI outflows	2.854	0.353

Note: * denotes significance at the 10% levels.

Table 4. Parameter stability tests.

	BPR equation		FDI inflows equation		FDI outflows equation		VAR system
Tests	Statistics	p-value	Statistics	p-value	Statistics	p-value	Statistics	p-value
Sup-F	73.735**	0.011	88.675***	0.000	78.356***	0.000	99.534***	0.000
Mean-F	67.634***	0.007	38.634***	0.002	47.673***	0.001	57.534***	0.001
Exp-F	28.635***	0.003	45.645***	0.001	59.356***	0.000	69.523***	0.000
Lc^b							6.234***	0.001

Notes: We calculate p-values using 10,000 bootstrap repetitions.

** and *** denote significance at the 5% and 1% level, respectively.

Hansen-Nyblom parameter stability test for all parameters in the VAR jointly.

Figure 2. Bootstrap p-value of rolling test statistic testing the null that FDI inflows do not Granger cause BPR.

Figure 3. Bootstrap p-value of rolling test statistic testing the null that FDI outflows do not Granger cause BPR.

Figure 4. Bootstrap p-value of rolling test statistic testing the null that BPR do not Granger cause FDI inflows.

Figure 5. Bootstrap estimates of the sum of the rolling window coefficients for the impact of BPR on FDI inflows.

Figure 6. Bootstrap p-value of rolling test statistic testing the null that BPR do not Granger cause FDI outflows.

Figure 7. Bootstrap estimates of the sum of the rolling window coefficients for the impact of BPR on FDI outflows.

Figure 8. Bootstrap p-value of rolling test statistic testing the null that leader's visit do not Granger cause FDI inflows (outflows).

Figure 9. Bootstrap p-value of rolling test statistic testing the null that diplomatic conflict do not Granger cause FDI inflows (outflows).