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Nonlinear impacts of debt ratio and term spread on inward FDI performance persistence

Author

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  • Po-Chin Wu

    (Chung Yuan Christian University)

  • Chia-Jui Chang

    (Chung Yuan Christian University)

Abstract

This paper adopts panel smooth transition autoregression models with the proxies of monetary and fiscal policies (i.e., term spread and debt ratio) as the transition variables to estimate inward foreign direct investment (FDI) performance and its persistence. The models can trace the characteristics of inflow FDI performance in nonlinearity, heterogeneity, and persistence. Empirical results show that the inward FDI performance and its persistence for the ten OECD countries during 1996–2010 are nonlinear and vary with time and across countries, depending on the proxies in different regimes. The threshold values for the term spread and debt ratio are 2.51 and 64.9847%, respectively. Moderately enhancing the term spread and the debt ratio is helpful to exclude specific exogenous disturbance on FDI inflows and stabilize the persistence of FDI inflow performance. However, debt issuance causes a transitorily volatile effect on the persistence (i.e., a negative persistence effect) more easily than monetary policy.

Suggested Citation

  • Po-Chin Wu & Chia-Jui Chang, 2017. "Nonlinear impacts of debt ratio and term spread on inward FDI performance persistence," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 34(3), pages 369-388, December.
    • Handle: RePEc:spr:epolit:v:34:y:2017:i:3:d:10.1007_s40888-017-0076-0
    DOI: 10.1007/s40888-017-0076-0
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    More about this item

    Keywords

    Inward FDI performance index; Panel smooth transition autoregression model (PSTAR); Public debt-to-GDP ratio; Term spread of interest rates;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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