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Testing the Mechanism of Policy Uncertainty

In: The Politics of Attracting Investment

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  • Chase C. Englund

    (U.S. Department of the Treasury)

Abstract

This chapter provides an empirical test of the mechanism linking political competition and the number of economic elites in a nondemocratic state with the level of FDI inflows, which is investor uncertainty over the policies governing investment. The chapter hypothesizes that nondemocratic states with less political competition and fewer competing economic elites will feature more stable policy and thus feature higher investor confidence. A series of textual analysis data derived from the quarterly earnings calls of firms located in nondemocratic states is employed to measure the policy sentiment of investors. The analysis finds a strong negative association between political competition and investor sentiment and between the number of competing economic elites and investor sentiment. Lastly, the analysis includes a two-stage regression linking investor policy sentiment with aggregate investment inflows, completing the causal chain.

Suggested Citation

  • Chase C. Englund, 2024. "Testing the Mechanism of Policy Uncertainty," Contributions to Economics, in: The Politics of Attracting Investment, chapter 0, pages 95-113, Springer.
    • Handle: RePEc:spr:conchp:978-3-031-74951-3_6
    DOI: 10.1007/978-3-031-74951-3_6
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