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Are prudent monetary and fiscal policy drivers of FDI inflows?

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  • de Mendonça, Helder Ferreira
  • Tiberto, Bruno Pires

Abstract

Emerging Market and Developing Economies (EMDE) countries are the leading destinations of Foreign Direct Investment (FDI). We investigate whether prudent monetary and fiscal policy through indicators that reflect the expectations concerning the central bank's commitment to a target and the sustainability of government finance affects FDI inflows. Based on a large sample of 75 EMDE countries from 1990 to 2019, we provide empirical evidence through panel data analysis that prudent macroeconomic policies are an essential driver of FDI inflows. The findings support the view that using prudent monetary and fiscal policy can help enhance FDI inflows in EMDE countries.

Suggested Citation

  • de Mendonça, Helder Ferreira & Tiberto, Bruno Pires, 2024. "Are prudent monetary and fiscal policy drivers of FDI inflows?," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 5(1).
    • Handle: RePEc:eee:lajcba:v:5:y:2024:i:1:s2666143824000024
    DOI: 10.1016/j.latcb.2024.100120
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    Keywords

    Foreign direct investment; Macroeconomic stability; Central bank credibility; Public debt; Risk for budget balance; Inflation targeting;
    All these keywords.

    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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