Policy Uncertainty, Irreversibility, and Cross-Border Flows of Capital
51 Pages Posted: 6 Nov 2013
There are 2 versions of this paper
Policy Uncertainty, Irreversibility, and Cross-Border Flows of Capital
Date Written: August 31, 2013
Abstract
We examine the effects of government policy uncertainty on cross-border capital flows. FDI flows from US companies to foreign affiliates drop significantly during the period just before an election. The election effect for FDI is larger than election cycles in domestic investment. The electoral patterns in FDI flows are more pronounced in countries with higher propensities for policy reversals and when election outcomes are more uncertain. Our identification strategy compares variation in different types of capital flows into the same country around the timing of national elections. The electoral cycles are present in relatively irreversible FDI flows but not in foreign portfolio investment flows, suggesting a likely causal link from political uncertainty to and capital flows.
Keywords: Foreign direct investment, political uncertainty
JEL Classification: G15, G31, G38
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Uncertainty about Government Policy and Stock Prices
By Lubos Pastor and Pietro Veronesi
-
Uncertainty About Government Policy and Stock Prices
By Lubos Pastor and Pietro Veronesi
-
Uncertainty About Government Policy and Stock Prices
By Lubos Pastor and Pietro Veronesi
-
Uncertainty About Government Policy and Stock Prices
By Lubos Pastor and Pietro Veronesi
-
Investment with Uncertain Tax Policy: Does Random Tax Policy Discourage Investment?
-
Measuring Economic Policy Uncertainty
By Scott R. Baker, Nicholas Bloom, ...
-
Political Uncertainty and Corporate Investment Cycles
By Brandon Julio and Youngsuk Yook