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FDI, growth and trade partisan conflict in the US: TVP-BVAR approach

Author

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  • Yifei Cai

    (The University of Western Australia)

  • Angeliki Menegaki

    (Agricultural University of Athens
    Hellenic Open University
    Open University of Cyprus)

Abstract

This paper utilizes time-varying parameters Bayesian vector auto-regression model with stochastic volatility approach to investigate the time-varying dynamic relation between FDI, growth and trade partisan conflict in the US. The empirical results confirm that an increase in trade partisan conflict will deter FDI inflows to the US and discourage economic activities. Besides, we also examine the responses of equity investment, intra-company loans and reinvestment earnings given trade partisan conflict shock. In a robustness check, we consider different measurements on FDI and other control variables. The negative role of a trade partisan conflict shock is not altered, indicating the robustness of the findings. Moreover, trade partisan conflicts like GATT, Omnibus Bill Veto, NAFTA, Bush versus Kerry, the financial crisis and TPP are key factors which affect the dynamics. The US government should remedy the negative impacts of trade policy conflict on FDI inflows and economic growth.

Suggested Citation

  • Yifei Cai & Angeliki Menegaki, 2021. "FDI, growth and trade partisan conflict in the US: TVP-BVAR approach," Empirical Economics, Springer, vol. 60(3), pages 1335-1362, March.
    • Handle: RePEc:spr:empeco:v:60:y:2021:i:3:d:10.1007_s00181-019-01795-1
    DOI: 10.1007/s00181-019-01795-1
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    More about this item

    Keywords

    Trade partisan conflict; FDI; Growth; Time-varying; Bayesian VAR;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F3 - International Economics - - International Finance

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