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Multinational investment activity under policy uncertainty in host and competing countries

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  • Kim, Daisoon
  • Lee, Sunhyung

Abstract

This paper examines how economic policy uncertainty (EPU) in host and competing countries reshapes U.S. multinationals’ greenfield foreign direct investment (FDI). Using firm–destination level data from 2003 to 2021, we show that while host-country EPU deters investment, EPU in competing destinations attracts it through a spillover effect. We document a structural shift around 2015: as global EPU rose unevenly, the spillover effect from competitors became the dominant driver of investment decisions, supplanting the direct effect of host-country policy instability. Our findings indicate that in an era of heightened global uncertainty and risk, FDI allocation is governed by relative, not just absolute, policy stability.

Suggested Citation

  • Kim, Daisoon & Lee, Sunhyung, 2026. "Multinational investment activity under policy uncertainty in host and competing countries," Journal of International Economics, Elsevier, vol. 161(C).
    • Handle: RePEc:eee:inecon:v:161:y:2026:i:c:s0022199626000425
    DOI: 10.1016/j.jinteco.2026.104252
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    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F6 - International Economics - - Economic Impacts of Globalization

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