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Policy uncertainty, irreversibility, and cross-border flows of capital

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  • Julio, Brandon
  • Yook, Youngsuk

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.

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  • Julio, Brandon & Yook, Youngsuk, 2016. "Policy uncertainty, irreversibility, and cross-border flows of capital," Journal of International Economics, Elsevier, vol. 103(C), pages 13-26.
  • Handle: RePEc:eee:inecon:v:103:y:2016:i:c:p:13-26
    DOI: 10.1016/j.jinteco.2016.08.004
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    Cited by:

    1. repec:eee:jbfina:v:88:y:2018:i:c:p:113-128 is not listed on IDEAS
    2. Nicolas Gavoille & Katharina Hofer, 2018. "Capital Controls and Electoral Cycles," SSE Riga/BICEPS Research Papers 5, Baltic International Centre for Economic Policy Studies (BICEPS);Stockholm School of Economics in Riga (SSE Riga).
    3. repec:spr:manint:v:57:y:2017:i:5:d:10.1007_s11575-017-0318-y is not listed on IDEAS
    4. Elif C. Arbatli & Steven J. Davis & Arata Ito & Naoko Miake & Ikuo Saito, 2017. "Policy Uncertainty In Japan," NBER Working Papers 23411, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Political uncertainty; Institutional quality; Foreign direct investment;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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