Policy Uncertainty, Irreversibility, and Cross-Border Flows of Capital

42 Pages Posted: 20 Mar 2012 Last revised: 28 Aug 2016

See all articles by Brandon Julio

Brandon Julio

Lundquist College of Business, University of Oregon

Youngsuk Yook

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: August 17, 2016

Abstract

We examine the effects of political uncertainty on cross-border capital flows using election timing as a source of fluctuations in political uncertainty. FDI flows from US companies to foreign affiliates drop significantly during the period just before an election and increase after the uncertainty is resolved, consistent with the view that political uncertainty deters foreign investment. The electoral patterns in FDI flows are more pronounced when elections are more competitive. The impact of political uncertainty on FDI flows depends on the level of institutional quality. Countries with higher levels of institutional quality experience significantly less variation in FDI around election cycles.

Keywords: Political Uncertainty, Foreign Direct Investment

JEL Classification: G15, G31, G38

Suggested Citation

Julio, Brandon and Yook, Youngsuk, Policy Uncertainty, Irreversibility, and Cross-Border Flows of Capital (August 17, 2016). Journal of International Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2024612 or http://dx.doi.org/10.2139/ssrn.2024612

Brandon Julio (Contact Author)

Lundquist College of Business, University of Oregon ( email )

1280 University of Oregon
Eugene, OR 97403
United States

Youngsuk Yook

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-475-6324 (Phone)

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