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Impact of Economic Policy Uncertainty on FDI Inflows: Evidence from India

In: Recent Developments in Asian Economics International Symposia in Economic Theory and Econometrics

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  • Aishanee Sinha
  • Taniya Ghosh

Abstract

This chapter examines the impact of uncertainty about economic policy on the foreign direct investment (FDI) inflows in India. Uncertainty over domestic and international economic policy adversely affects the international flow of goods, services, and investment. FDI is one of the most stable type of capital flows. FDI is considered to be more sensitive to policy uncertainty because higher fixed costs are involved in FDI than other types of capital flows. The authors estimate the impact of economic policy uncertainty on FDI inflows in the short and long run for India. The results of this study show that the policy uncertainty has a higher impact on FDI inflows in the long run than in the short run. It is known that FDI and GDP growth are positively related. Thus to attract more FDI inflows it is desirable to have predictable policies.

Suggested Citation

  • Aishanee Sinha & Taniya Ghosh, 2021. "Impact of Economic Policy Uncertainty on FDI Inflows: Evidence from India," International Symposia in Economic Theory and Econometrics, in: Recent Developments in Asian Economics International Symposia in Economic Theory and Econometrics, volume 28, pages 157-167, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:isetez:s1571-038620210000028009
    DOI: 10.1108/S1571-038620210000028009
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    More about this item

    Keywords

    Foreign direct investment; economic policy uncertainty; uncertainty; India; autoregressive distributed lag; trade openness; E52; E58; E62; F21; F23; F31;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • 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
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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