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Policy uncertainty and FDI: Evidence from national elections

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  • Kexin Chen
  • He Nie
  • Zhenyu Ge

Abstract

This paper examines the impact of policy uncertainty on FDI among 126 countries from 1996 to 2015. Using the timing of national elections as a proxy for policy uncertainty, we find that FDI drops significantly in election years, when policy uncertainty increases. The negative effect of policy uncertainty on FDI also depends on the degree of democratization and the political system. In democracies and countries with the Assembly elected president, the decline of FDI in election years is far more pronounced. Our results highlight the role of policy environment and institution in economic development.

Suggested Citation

  • Kexin Chen & He Nie & Zhenyu Ge, 2019. "Policy uncertainty and FDI: Evidence from national elections," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 28(4), pages 419-428, May.
    • Handle: RePEc:taf:jitecd:v:28:y:2019:i:4:p:419-428
    DOI: 10.1080/09638199.2018.1545860
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    Citations

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    Cited by:

    1. Sean Joss Gossel, 2020. "FDI and Elections in Sub-Saharan Africa," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 32(4), pages 1151-1172, September.
    2. Jaewon Jung, 2023. "Multinational Firms and Economic Integration: The Role of Global Uncertainty," Sustainability, MDPI, vol. 15(3), pages 1-18, February.
    3. Abdalwali Lutfi & Maryam Ashraf & Waqas Ahmad Watto & Mahmaod Alrawad, 2022. "Do Uncertainty and Financial Development Influence the FDI Inflow of a Developing Nation? A Time Series ARDL Approach," Sustainability, MDPI, vol. 14(19), pages 1-11, October.
    4. Sangyup Choi & Davide Furceri & Chansik Yoon, 2019. "Policy Uncertainty and FDI Flows: The Role of Institutional Quality and Financial Development," Working papers 2019rwp-144, Yonsei University, Yonsei Economics Research Institute.
    5. Clougherty, Joseph A. & Zhang, Nan, 2023. "Antitrust policy and inward FDI: The impact of policy risk and uncertainty on U.S. inward-FDI flows," International Business Review, Elsevier, vol. 32(4).
    6. Sangyup Choi & Davide Furceri & Chansik Yoon, 2021. "Policy uncertainty and foreign direct investment," Review of International Economics, Wiley Blackwell, vol. 29(2), pages 195-227, May.
    7. Ming-Chang Huang & Tian-Jyun Gong & Shih-Ping Sun & Ping-Hsin Lin, 2023. "Obstacles or catalysts? A balanced view of formal institutional risks on FDI location choice," Asian Business & Management, Palgrave Macmillan, vol. 22(5), pages 2077-2105, November.
    8. Wanfu Jin & Chunshan Zhou, 2022. "Effect of Land Marketization Level and Land Prices on Foreign Direct Investment in China," Land, MDPI, vol. 11(9), pages 1-20, August.
    9. Ogbuabor, Jonathan E. & Ukwueze, Ezebuilo R. & Mba, Ifeoma C. & Ojonta, Obed I. & Orji, Anthony, 2023. "The asymmetric impact of economic policy uncertainty on global retail energy markets: Are the markets responding to the fear of the unknown?," Applied Energy, Elsevier, vol. 334(C).
    10. Hayakawa, Kazunobu & Hyun-Hoon, Lee & Cyn-Young, Park, 2022. "Impacts of COVID-19 on foreign direct investment," IDE Discussion Papers 831, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    11. Nvuh‐Njoya Youssouf & Keneck‐Massil Joseph & Yogo Urbain Thierry, 2024. "Constitutional instability and foreign direct investment in Africa," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 32(1), pages 3-23, January.
    12. Marvin Jahn & Paul Stricker, 2022. "FDI, liquidity, and political uncertainty: A global analysis," International Economics and Economic Policy, Springer, vol. 19(4), pages 783-823, October.

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