International Economics 161 (2020) 159–172

Contents lists available at ScienceDirect

International Economics
journal homepage: www.elsevier.com/locate/inteco

Determinants of foreign direct investment inflows: The role of

economic policy uncertainty
Nguyen Phuc Canh a, b, *, Nguyen Thanh Binh b, Su Dinh Thanh c,
Christophe Schinckus d
a
School of Banking, University of Economics Ho Chi Minh City, 59C Nguyen Dinh Chieu, Ward 6, District 3, Ho Chi Minh City, Viet Nam
b
School of Business and Management, Royal Melbourne Institute of Technology (RMIT) University, Viet Nam
c
School of Public Finance, University of Economics Ho Chi Minh City, Viet Nam
d
Taylor’s Business School, Taylor’s University, Selangor, Malaysia

A R T I C L E I N F O A B S T R A C T

JEL classification: This article investigates the impacts of the domestic economic policy uncertainty (EPU) and the
F21 World Uncertainty (WUI) on net foreign direct investment inflows (FDI) for 21 economies over the
D81 period 2003–2013. By using the sequential (two-stage) technique of linear panel data models, this
E02
study provides two major results. First, the growth rate of domestic EPU adversely affects FDI
Keywords: inflows. Second, when combined with the domestic EPU level, the World Uncertainty (WUI) that
FDI inflows
includes the economic policy uncertainty measure of 143 countries has a positive impact on the
Domestic and global economic policy
FDI inflows into the host country. The findings suggest that although domestic economic policy
uncertainty
Sequential (two-stage) estimation uncertainty has an adverse effect on FDI inflows; an increase in the global (world) economic policy
uncertainty could increase FDI inflows into the country. We explain this systematic aversion to
global uncertainty through the existence of a behavioural bias (anchor and adjustment) illustrating
the investors’ sensitivity to their ability to associate a frame to uncertainty.

1. Introduction

The effects of time-varying uncertainty on the macro-economy have attracted a lot of attention in these recent years, motivated by
the Financial Crisis and the Brexit. The majority of the studies document an adverse impact of rising uncertainty on macroeconomic
variables.1 Particularly, the effects of Economic Policy Uncertainty (EPU) on production and financial variables have recently gained a
lot of academic interest,2 partly due to the availability of the EPU measure proposed by Scott R Baker et al. (2016). The specialized
literature also shows that high EPU in a country lowers investment (Scott R Baker et al., 2016; Gulen and Ion, 2015), lowers production
(Caggiano et al., 2017; Karnizova and Li, 2014), decreases stock (Arouri et al., 2016; Pastor and Veronesi, 2012) and real estate prices
(Choudhry, 2019) in that country. Although the effect of an increase in the domestic EPU on aggregated variables within a country is

* Corresponding author. School of Banking, University of Economics Ho Chi Minh City, 59C Nguyen Dinh Chieu, Ward 6, District 3, Ho Chi Minh
City, Viet Nam.
E-mail addresses: canhnguyen@ueh.edu.vn (N.P. Canh), binh.nguyenthanh@rmit.edu.vn (N.T. Binh), dinhthanh@ueh.edu.vn (S.D. Thanh),
Christophe.Schinckus@taylors.edu.my (C. Schinckus).
1
Studies find negative effects of uncertainty on output, investment, asset and housing prices (e.g., Bloom (2009), Christiano et al. (2014), Bansal
et al. (2014), Strobel et al. (2018), Nguyen Thanh et al. (2019), Thanh (2019)).
2
Bonaime et al. (2018), Bordo et al. (2016), Drobetz et al. (2018), Hu and Gong (2018), Ko and Lee (2015) and Phan et al. (2018) are further
studies on the effects of Economic Policy Uncertainty.

https://doi.org/10.1016/j.inteco.2019.11.012
Received 27 January 2019; Received in revised form 16 October 2019; Accepted 26 November 2019
Available online 5 December 2019
2110-7017/© 2019 CEPII (Centre d'Etudes Prospectives et d'Informations Internationales), a center for research and expertise on the world economy. Published by Elsevier B.V. All rights reserved.
N.P. Canh et al. International Economics 161 (2020) 159–172

quite well understood, there are still few studies on the impact of EPU on cross-border investment decisions. This article fills this gap and
contributes to the existing literature by analyzing the impact of EPU on cross-border investment and more precisely on Foreign Direct
Investment (FDI).
There are several aspects to consider when analyzing the influence of EPU on FDI inflows of a country. First, as pointed out by Gulen
and Ion (2015), in case of high EPU, the benefits of waiting (until uncertainty decreases) are more important when investments are
irreversible or (very) costly to reverse. Investing in a foreign country (FDI) usually requires particular preparations that are often
materialized through long-run commitments which cannot be easily reversed unlike a domestic investment due to exchange rate
exposure or restrictive regulation on withdrawing capital. Consequently, in a period of high EPU, the benefits of waiting during periods
of high EPU might be considered as more reasonable; alternatively, investors already involved in FDI in a country with an increasing
EPU might also decrease the level of investment leading to a decrease of FDI inflows into this country. The literature also suggests that
the major determinants of FDI inflows are the host country’s macroeconomic conditions such as growth (e.g., Bevan and Estrin (2004)),
exchange rate (Bevan and Estrin, 2004) and trade (Liu et al., 2001). As aforementioned, those factors are found to be adversely affected
by high EPU (e.g., Karnizova and Li (2014); Krol (2014); Bernal et al. (2016); Tam (2018)). In other words, EPU and FDI inflows are
related: the deterioration of the FDI determinants after an EPU shock in the host country decrease the FDI investment into this country.
Some authors (Schneider and Frey (1985); Globerman and Shapiro (2002)) highlighted the importance, for FDI inflows, of the political
stability and governance infrastructure including the political, institutional and legal environment. Increases in EPU are often related to
potential changes in the economic policy so that international investors are more likely to opt for a wait-and-see attitude instead of
investing in the host country.
Regarding international uncertainty, some studies (Colombo (2013); Carri
ere-Swallow and Cespedes (2013); Cheng (2017)) found
that, in combination with the domestic uncertainty, the uncertainty in another region/country also has a negative effect on the domestic
economic activity. These findings suggest that, before making FDI investment decision in a particular country, international investors
consider the EPU in other regions in addition to the one in their home country. This article investigates these aspects by using EPU
measure proposed by Scott R Baker et al. (2016) and a sample of 21 economies over the period 2003–2013 in a panel data analysis
framework. Furthermore, we use the World Uncertainty (WUI) measure to capture worldwide economic uncertainty and we use
different estimation methods including two-step system GMM models.
The remainder of this study is organized as follows. The next section reviews the literature on the determinants of FDI. The
methodology and data are presented in Section 3 while Section 4 reports and discusses the empirical results. Finally, Section 5 concludes
this article by suggesting some recommendations.

2. Literature review

2.1. Literature dealing with the determinants of FDI

An important literature suggests that the major determinants of FDI inflows into a host country include the macroeconomic variables
such as economic growth (Bevan and Estrin, 2004; Biswas, 2002; Blonigen and Piger, 2014), labor force and human capital (Blomstr€ om
et al., 2003; Globerman and Shapiro, 2002), exchange rate (Bevan and Estrin, 2004), inflation (Asiedu, 2002), international trade (Liu
et al., 2001; Moore, 1993), financial development (Hermes and Lensink, 2003) and infrastructure development (Armah and Fosu, 2018;
Cuyvers et al., 2011). In relation to that, some studies also emphasized the important roles played by institutional factors (Aziz, 2018;
Benassy-Quere et al., 2007; Biswas, 2002; Blonigen and Piger, 2014; Schneider and Frey, 1985). For example, Schneider and Frey (1985)
proposed a politico-economic model explaining the flows of FDI in 80 less developed countries and these authors found that political
instability significantly reduced FDI inflows. Globerman and Shapiro (2002) emphasized that governance infrastructure such as the
political, institutional, and legal environment are important drivers for FDI flows. Benassy-Quere et al. (2007) showed that institutional
indicators including bureaucracy, corruption, information, banking sector and legal institutions are influencing factors for FDI inflows in
52 economies. More recently, Brada et al. (2018) documented that FDIs are negatively affected by the level of corruption in the host
country and by the corruption-distance between the home and the host country. Xu (2019) indicates that the economic freedom of both
the home and host country are positively correlated with bilateral FDI in a sample of 155 countries.

2.2. Literature dealing with the impact of EPU on the macro-economy

Although uncertainty is very difficult to estimate, it directly affects economic activities (Schinckus, 2009). Broadly speaking, the
literature observed a significant and negative impact of an increase in the EPU on the investment activity (Gulen and Ion (2015), Scott R
Baker et al. (2016), Drobetz et al. (2018)). Related to this point, an increasing EPU might also decrease the sensitivity of investment to
changes in the cost of capital. In particular, during high EPU periods, consumers and investors are likely to opt for a wait-and-see attitude
instead of making costly investment\consumption leading to a decrease in the real production (Karnizova and Li (2014); Caggiano et al.
(2017)). Furthermore, an increase in the EPU negatively influences the financial market through different channels. First, this increase
reduces significantly the stocks’ returns and this effect is stronger and more persistent during high volatility periods (Arouri et al., 2016;
Ko and Lee, 2015). Second, a high EPU significantly lowers bank lending growth with a stronger impact on larger-sized and riskier banks
(Bordo et al., 2016; Hu and Gong, 2018). Third, an increase in the EPU reduces M&A activities, and the effect is particularly evident for
less reversible deals (Bonaime et al., 2018).

160
N.P. Canh et al. International Economics 161 (2020) 159–172

3. Data and econometric specification

Our sample is composed by yearly data of 21 countries over the period 2003–2013. We collect the EPU series from www.
policyuncertainty.com provided by Scott R. Baker, Bloom, and Davis (2018) while the macroeconomic data come from the following
sources: World Development Indicators (World Bank); the U.S. Energy Information Administration; Penn World Table 9.0 and World
Governance Indicators (World Bank). The EPU measure is available monthly and it is formed from three components including (i)
newspaper coverage of policy-related economic uncertainty, (ii) the number of federal tax code provisions set to expire in future years,
and (iii) disagreement among economic forecasters as a proxy for uncertainty. We use the growth rate between the EPU December values
(EPUc) in our regression analysis to proxy the change in the domestic EPU of each country for each year.3 In term of global uncertainty,
we recruit the World Uncertainty Index of Ahir et al. (2019) from www.policyuncertainty.com, which includes the uncertainty measures
from 143 countries to proxy the global uncertainty level measure (in the whole world in the same way of domestic EPU). Because the
WUI actually capture the domestic economic uncertainties (EPU for each country); this study separated these domestic EPUs from the
WUI for each country by extracting from the original WUI the contribution of the domestic EPU4 for each country, the new WUI is named
as adjusted WUI. To check the robustness of the estimation results, this adjusted WUI is recruited to replace for original WUI.
Most of the economies in our sample are advanced and large emerging economies (see Table A1 in Appendix for the country list). We
take into account of the findings of the existing literature5 by using a large set of control variables including: real GDP growth (GDPg),
inflation (Inf), gross capital formation (Cap) as a proxy for infrastructure development, human capital (HC), domestic credit provided by
the financial sector (FD) as a proxy of financial development, CO2 emissions (CO2) to proxy for environmental factors, energy security
(ES) to proxy for resource factors, real exchange rate (REER), trade openness (Trade), and the institutional quality (INST) measured by
the mean of control of corruption, government effectiveness, regulatory quality, political stability, rule of law and voice and
accountability. All these variables are then combined in the following baseline econometric model:

FDIinit ¼ α0 þ α1 FDIinit1 þ βj Xj;it þ δ1 EPUit þ δ2 WUIt þ εit ; (1)

where FDIin denotes the net aggregated inflows of FDI relative to GDP of the host country, EPU is the domestic EPU while WUI is the
world uncertainty measure; X contains the aforementioned control variables. The domestic EPU might affect FDI into the host country
through multiple channels: first, as pointed out by studies such as Gulen and Ion (2015), firms are more likely to wait before making
costly-to-reverse investment decisions during periods of high uncertainty. Investing into a foreign country is a long-run commitment, the
benefits of waiting for international investors who consider investing into a country with high EPU might postpone their investment
leading to a decrease of FDI inflows into that country. Second, one of the main determinants of FDI inflows is the host country’s growth
prospect (e.g., Bevan and Estrin (2004)). As a high EPU is likely to depress growth (e.g., Karnizova and Li (2014)), international in-
vestors might anticipate the decline in the real economy of the host country after an EPU shock, and choose to decrease their investments
into that country. Third, a strand of literature highlights the importance of political, institutional and legal stability for FDI inflows (as
evoked in our previous section). Since an increase in the EPU is often related to potential changes in the economic policy, international
investors are more likely to display the wait-and-see attitude instead of investing into the host country if EPU is high which in turn
lowers FDI inflows.
Furthermore, in addition to the host country’s EPU level, the uncertainty level in other countries/regions (WUI and adjusted WUI,
respectively) might also affect the FDI inflows into the host country (Colombo (2013); Carri
ere-Swallow and Cespedes (2013); Cheng
(2017)). Because we use the aggregated number of FDI inflows, one can mention that the EPUs within the host country might not be the
major concerns of multinational cooperation (MNCs). However, the domestic EPUs would impact the economic conditions of a country
influencing, therefore, the expected returns of MNCs operating in this country. Actually, the WUI (global uncertainty) could play a more
dominant role, in this case, explaining why both the WUI and the domestic EPUs are recruited in this study to detect any potential
differences in the effect of the global uncertainty and the role of the domestic uncertainty. Our equation [1] takes the form of dynamic
panel data and our study employs the two-step system GMM for the estimation of dynamic unbalanced panel data. Classically, the system
generalized methods of moments (GMM) estimators are suggested to be applied when the estimations for panel data face with
endogenous problems (Nickell, 1981). The dynamic form in our estimations with a lagged dependent variable in an explanatory variable
introduces a risk of endogeneity into our model. Moreover, many previous studies (Armah and Fosu, 2018; Globerman and Shapiro,
2002; Hermes and Lensink, 2003; Liu et al., 2001) faced with such kind of issue. In this context, dependent variable has a possible
potential effect on the independent variables causing, therefore, a problem of endogeneity. A solution to this issue was firstly proposed
by Anderson and Hsiao (1982) and Arellano and Bond (1991) who proposed the GMM method that has been then improved by Arellano
and Bover (1995) basing on Arellano and Bond (1991), and extended by Blundell and Bond (1998) and Blundell and Bond (1998) to
reduce the bias associated with the fixed effects in short panels and to solve the problem of endogeneity in dynamic panel data. Although
the two-step system GMM estimator is quite efficient, it might still regularly produce a bias of uncorrected standard errors (Windmeijer,

3
We also use the growth rate of the yearly mean of EPU (EPUmc) for robustness checks. It is worth mentioning we found very similar results
suggesting our results are consistently robust.
4
We thank the reviewer for this suggestion. This adjustment has been made by multiplying each domestic EPUs with its real GDP weight to the
world real GDP.
5
See the following literature Agarwal (1980), Amal (2016), Biswas (2002), Blonigen and Piger (2014), Castro et al. (2013), Cuyvers et al. (2011),
Keeley and Ikeda (2017), Raluca and Alecsandru (2012).

161
N.P. Canh et al. International Economics 161 (2020) 159–172

Table 1
Data calculations and description.
Variable Calculation Obs Mean Std. Dev. Min Max

FDIin Foreign direct investment, net inflows (% of GDP) 231 5.422 9.106 5.671 87.443
GDPg Real GDP growth (annual %) 231 2.703 3.641 9.132 15.240
Inf Inflation, GDP deflator (annual %) 231 3.214 3.818 5.010 23.642
Cap Gross capital formation (% of GDP) 231 23.79 6.09 11.60 47.69
HC Human capital index, based on years of schooling and returns to education 231 3.090 0.436 2.170 3.726
FD Domestic credit provided by financial sector (% of GDP) 226 139.54 67.85 20.81 338.15
CO2 Log of CO2 emissions (metric tons per capita) 231 1.985 0.627 0.254 2.979
ES Energy security ¼ Primary Energy production/Primary Energy consumption 231 0.808 0.751 0.000 3.316
REER Log of Real effective exchange rate index 231 4.586 0.113 4.013 4.915
Trade Trade (% of GDP) 231 79.96 78.26 21.58 441.60
INST Mean of six institutional indictors 231 0.875 0.779 0.742 1.835
EPUc ¼ ΔLog(Country Economic Policy Uncertainty index in December) 210 0.029 0.485 1.417 1.306
EPUmc ¼ ΔLog(Yearly mean of country Economic Policy Uncertainty index) 210 0.004 0.296 0.832 1.047
WUIc ¼ ΔLog(World Uncertainty index in December (real price)) 210 0.037 0.423 0.788 0.750
WUImc ¼ ΔLog(Yearly mean of World Uncertainty index (real price)) 210 0.012 0.373 0.556 0.633
aWUIc ¼ ΔLog(Adjusted World Uncertainty index in December (real price)) 210 0.037 0.427 0.884 0.871
aWUImc ¼ ΔLog(Adjusted Yearly mean of World Uncertainty index (real price)) 210 0.010 0.375 0.676 0.733

Note: see Appendix for Adjusted Global Economic Policy Uncertainty’s calculation.

2005). Kripfganz (2017) proposed a new method named ‘Sequential (two-stage) estimation of linear panel-data model (SELPDM)’ to
solve this problem. The conventional standard errors are no longer valid in sequential estimation when the residuals from the first stage
are regressed on another set of (often time-invariant) explanatory variables at a second stage.
Therefore, we estimate Equation [1] by using the two-step Sequential (two-stage) estimation of linear panel-data models (SELPDM)
(as proposed by Kripfganz (2017)) as a benchmark estimation and we then apply the two-step system GMM model in line with Blundell
and Bond (1998) for robustness check purpose.6
With the presence of a lagged dependent variable in the dynamic models, all estimated coefficients represent the short-run effects of
the explanatory variables. In this context, we therefore follow the procedure developed by Papke and Wooldridge (2005) to estimate the
long-run elasticities of the explanatory variables. Such analysis (derived from Equation [1]) helps us catch up in capturing the long-run
effects of the determinants on net FDI inflows as well as the possible lag effects in the decisions of multinational enterprises in choosing a
host country.
Table 1 below presents the description of the whole data set (see Table A2 in the Appendix for the details of the primary data). The
average of net aggregated FDI inflows is 5.4% in the Netherlands, Singapore, and Ireland having the highest level of FDI inflows whereas
other advanced economies such as USA, Japan, Italy and Germany have a low level of net FDI inflows.
Fig. 1 hereafter depicts the average net FDI inflows for all countries in the sample. Interestingly, the net FDI inflows into Chile are the
highest among the emerging economies. Furthermore, Figs. 2 and 3 report the FDI inflows and outflows from other countries in our
sample in comparison to total FDI inflows and outflows - Excluding Netherlands and China, other countries witness a relatively high
level of FDI inflows from other countries. In the case of outflows, excluding the Netherlands, the outflows of FDI are likely heading to
other countries in the group.
Figs. 4 and 5 show the level and the volatility of the domestic EPU, respectively. The level of EPU in the UK is particularly high during
and after the financial crisis period, and France also displays a high level of EPU in this sample. However, the volatility of EPU for France
and UK is not particularly high, whereas Mexico, China and Spain show the highest levels of volatility.
Table 2 reports the correlations between net FDI inflows and economic-institutional factors, while Table 3 reports the correlations
between net FDI inflows with EPU.
The FDI inflows have significant positive correlations with real GDP growth, trade openness, institutional quality, while it has
significant negative correlations with yearly mean and volatility of domestic EPU. This primary result is quite consistent with theoretical
literature on the determinants of FDI inflows and our arguments on the effects of EPU.
Table 4 shows the results of the cross-sectional dependence test by Pesaran’s CD test (Pesaran, 2004) and the results of the Pesaran
(2007)’s CIPS (Z(t-bar)) unit root tests, Im-Persaran-Shin unit root test (Im et al., 2003), and Fisher based on Phillips–Perron type
(Z(Inverse normal) unit root test (Choi, 2001). These tests validate that there is cross-sectional dependence in most of the variables
except for institutions and energy security, and most of the variables (except capital formation, human capital, financial development,
CO2 emissions, energy security, trade openness) are stationary. The next section discusses the estimation results.

4. Results and discussion

The results of our SELPDM model are presented from Tables 5 and 6 discussed in this section while the results of our two-step system

6
The two-step system GMM estimation results are presented in the Appendix. We also performed other estimation techniques including Pooled
OLS as additional robustness checks but the results were insignificant in Pool OLS estimators suggesting the existence of endogeneity in the esti-
mations so that the SELPDM and system GMM estimators are more likely suitable models.

162
N.P. Canh et al. International Economics 161 (2020) 159–172

Fig. 1. FDI net inflows (% GDP).

Fig. 2. Relative FDI net inflows from 20 remained countries with total net inflows. Note: Data of bilateral FDI of 21 countries is collected mainly from
OECD excepting Brazil, Colombia, China, Russia, and Singapore are collected from UNCTAD.

GMM (for robustness purpose) are reported in Table A in Appendix. All AR(2) and Hansen tests are not statistically significant indicating
that our results are consistent and unbiased (Roodman, 2006).
Table 5 shows the SELPDM estimations for Equation [1] using the host country’s EPU measure and excluding the WUI measure. The
results show that an increase in the EPU growth rates in the host country significantly reduces the FDI inflows into that country; more
precisely, a-one percentage point increase in the EPU of the host country decreases the FDI inflow into that country by 3.845 percentage
points in the short-run and by 7.331 percentage points in the long-run. This observation is in line with the conjecture according to which
high domestic EPU negatively affects FDI inflows due to (i) investors’ wait-and-see attitude postponing\reducing their investment de-
cisions, (ii) the deterioration of growth prospects affecting FDI investments and; (iii) the increased uncertainty about the future political,
institutional and legal environment which lowers FDI inflows. This finding holds in the long- and short-run as reported in Table 5. The

163
N.P. Canh et al. International Economics 161 (2020) 159–172

Fig. 3. Relative FDI net outflows from 20 remained countries with total net outflows. Note: Data of bilateral FDI of 21 countries is collected mainly
from OECD excepting Brazil, Colombia, China, Russia, and Singapore are collected from UNCTAD.

Fig. 4. Domestic economic policy uncertainty.

impact of the control variables on FDI inflows are consistent in line with the major results of the existing literature (e.g., an increase in
GDP, trade openness, real exchange rates or institutional quality increase FDI).
Interestingly, changes in both, the growth rate and the level of EPU (EPUc and EPUmc) have significant effects on FDI inflows. In
other words, an increase in the growth rate level of EPU would reduce FDI inflows, in the short and long run as exhibited in the
aforementioned Table 5.
In Table 6 hereafter, we use the WUI measure (WUIc, WUImc) and its adjusted indices (aWUIc, aWUImc) as the uncertainty measure

164
N.P. Canh et al. International Economics 161 (2020) 159–172

Fig. 5. Domestic economic policy uncertainty - volatility.

excluding the host country’s EPU measure to estimate the influence of this global uncertainty only on net FDI inflows.
We find that the growth rate of WUI has a significant positive effect on the FDI inflows implying that an increase in the growth rate of
WUI increases FDI inflows into the host country. The magnitude of this influence WUI is quite similar to the one of the domestic EPU: a
one percentage point increase in WUI increases the FDI inflow into the host country by 1.19 percentage points in the short-run and by
2.61 percentage points in the long-run. The findings support the reasoning that economic policy uncertainties outside of the host country
are also an important determinant for FDI inflows. The results we got for the adjusted WUI (aWUIc and aWUImc) are consistent with the
results of original WUI (WUIc and WUImc) indicating that the individual uncertainty might play a marginal role in the global measure of
uncertainty. Generally speaking, our findings are understandable since, other factors remaining constant, an increase of the global
uncertainty generates a relative decrease in the domestic uncertainty leading some actors to invest and therefore to increase the FDI
inflows in the country.
It is worth investigating to what extent the FDI inflows evolve when, both, the global and the domestic uncertainty are increasing. In
order to examine the importance of domestic EPU relative to WUI in the dynamics of FDI inflows, both are simultaneously included in
Equation [1]. The results are reported in two last columns of Table 6 indicating that an increase in the growth rate of WUI (WUIc and
WUIc) still have a significant positive effect on FDI inflows while whereas none of the domestic EPU measures is significant. This
observation indicates that the global economic policy uncertainty is the major driver for FDI inflows into the host country.7 At first sight,
these results could appear surprising because the investment decision-making process should be a context-depend procedure. However,
these findings have been observed for all countries in our sample indicating that there is a general aversion for the global uncertainty.
This systematic aversion might illustrate a bias identified in behavioural economics: the anchor and adjustment bias (Tversky and
Kahneman, 1974). Precisely, when domestic and global uncertainty increase, investors consider the domestic uncertainty as less
negative on their activity simply because they are able to anchor this uncertainty in a particular context. In other words, even though the
domestic uncertainty of a particular country might be higher than the global one, the ability to define and to anchor this uncertainty in a
specific (national) context appears to be the most important driver for investors. A lower ill-defined global uncertainty might make
investors more nervous than a higher but well-defined (i.e. geographically contextualized) uncertainty.

5. Conclusion

This study contributes to the literature by investigating the influence of both domestic and global EPU on FDI inflows in a sample of
21 economies over the period 2003–2013 using dynamic panel estimations. We found interesting observations. First, an increase in the

7
All results are consistent and robust throughout different estimation methods including the two-step system GMM models.

165
 N.P. Canh et al.
Table 2
Correlation matrix.
Correlation FDIin GDPg Inf Cap HC FD CO2 ES REER Trade INST

GDPg 0.12* 1.00

p-value 0.06
Inf 0.09 0.40*** 1.00
p-value 0.17 0.00
Cap 0.03 0.56*** 0.07 1.00
p-value 0.60 0.00 0.30
HC 0.02 0.33*** 0.30*** 0.29*** 1.00
p-value 0.75 0.00 0.00 0.00
0.34*** 0.60*** 0.03
166

FD 0.04 0.50*** 1.00

p-value 0.55 0.00 0.00 0.62 0.00
CO2 0.07 0.15** 0.22*** 0.08 0.78*** 0.45*** 1.00
p-value 0.30 0.02 0.00 0.23 0.00 0.00
ES 0.04 0.15** 0.41*** 0.04 0.12* 0.40*** 0.18*** 1.00
p-value 0.52 0.02 0.00 0.55 0.06 0.00 0.01
REER 0.06 0.15** 0.39*** 0.10 0.34*** 0.21*** 0.29*** 0.19*** 1.00
p-value 0.40 0.02 0.00 0.13 0.00 0.00 0.00 0.00
Trade 0.52*** 0.18*** 0.20*** 0.05 0.03 0.12* 0.10 0.34*** 0.07 1.00
p-value 0.00 0.01 0.00 0.42 0.70 0.07 0.14 0.00 0.28
INST 0.27*** 0.28*** 0.58*** 0.26*** 0.66*** 0.53*** 0.51*** 0.38*** 0.28*** 0.32*** 1.00
p-value 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Note: *, **, *** are significant levels at 10%, 5%, 1%, respectively.

International Economics 161 (2020) 159–172

N.P. Canh et al. International Economics 161 (2020) 159–172

Table 3
Correlation matrix (cont.).
Correlation FDIin Correlation FDIin Correlation FDIin

EPUc 0.017 WUIc 0.000 aWUIc 0.001

p-value 0.804 p-value 0.999 p-value 0.984
EPUmc 0.005 WUImc 0.056 aWUImc 0.057
p-value 0.945 p-value 0.411 p-value 0.412

Note: *, **, *** are significant levels at 10%, 5%, 1%, respectively.

Table 4
Cross-sectional dependence test and Stationary tests.
Variable CD-test CIPS for level Im–Pesaran–Shin test for level fisher unit root test for level

CD-test statistic p- Corr Abs(corr) Z-t-tilde-bar Statistic p- Inverse chi-squared-P Statistic p-

value value value

FDIin 7.80*** 0.000 0.16 0.31 3.130*** 4.125*** 0.000 126.9*** 0.000
GDPg 31.25*** 0.000 0.65 0.65 2.475*** 4.090*** 0.000 129.6*** 0.000
Inf 10.38*** 0.000 0.22 0.37 2.742*** 2.534*** 0.005 144.0*** 0.000
Cap 9.644*** 0.000 0.20 0.49 0.815 0.063 0.525 47.63 0.254
HC 39.67*** 0.000 0.83 0.96 0.033 8.707 1.000 34.48 0.788
FD 30.17*** 0.000 0.62 0.70 n/a 2.288 n/a 19.65 0.998
CO2 2.062** 0.039 0.04 0.68 0.539 4.977 1.000 25.54 0.978
ES 1.631 0.103 0.03 0.56 1.505 3.314 0.999 44.43 0.369
REER 1.771* 0.077 0.04 0.49 1.653 0.198 0.421 59.29** 0.040
Trade 12.70*** 0.000 0.26 0.53 1.098 1.064 0.143 40.25 0.547
INST 0.292 0.770 0.01 0.34 2.126* 3.441*** 0.000 121.2*** 0.000
EPUc 15.24*** 0.000 0.33 0.41 4.411*** 5.719*** 0.000 327.2*** 0.000
EPUmc 26.94*** 0.000 0.59 0.59 3.267*** 5.435*** 0.000 231.9*** 0.000

Notes: In CD test: the null hypothesis of cross-section independence, CD ~ N(0,1), p-values close to zero indicate data are correlated across panel
groups. In CIPS test: H0 (homogeneous non-stationary): bi ¼ 0 for all i. In Im-Pesaran-Shin test: Ho: All panels contain unit roots, Ha: Some panels are
stationary. In Fisher-type unit-root test (Based on Phillips-Perron tests): Ho: All panels contain unit roots, Ha: At least one panel is stationary. *, **, ***
are significant levels at 10%, 5%, 1%, respectively.

Table 5
Domestic Economic Policy Uncertainty and FDI inflows (Sequential (two-stage) estimation of linear panel data models).
Dep.var: FDIin Basline Institutions EPU and FDI inflows

Indep. Var EPUc EPUmc

L.FDIin 0.215*** 0.444*** 0.476*** 0.662***

[0.063] [0.056] [0.058] [0.072]
GDPg 0.448*** 0.552*** 0.725*** 0.460***
[0.146] [0.097] [0.147] [0.093]
Inf 0.316 0.245 0.457 0.409
[0.229] [0.193] [0.308] [0.279]
Cap ¡0.356*** ¡0.300*** ¡0.348*** ¡0.263***
[0.075] [0.076] [0.074] [0.051]
HC ¡6.968*** ¡5.705*** ¡5.790*** ¡3.442*
[1.284] [2.015] [1.888] [1.968]
FD 0.050*** 0.019* 0.030** 0.030**
[0.009] [0.011] [0.013] [0.013]
CO2 1.836 1.717* 1.909** 1.205
[1.175] [0.978] [0.950] [0.844]
ES 1.497** 0.769 0.710 0.557
[0.761] [0.629] [0.532] [0.385]
REER 13.223*** 9.338* 12.411* 10.305*
[4.704] [4.996] [6.472] [5.260]
Trade 0.058*** 0.037*** 0.032*** 0.027***
[0.005] [0.005] [0.007] [0.006]
INST 1.470** 1.873** 0.794
[0.709] [0.758] [0.653]
EPU ¡3.845*** ¡6.386*
[1.226] [3.422]
Constant 45.259** 28.515 44.006 40.810*
[20.564] [21.282] [29.829] [24.400]

(continued on next page)

167
N.P. Canh et al. International Economics 161 (2020) 159–172

Table 5 (continued )
Dep.var: FDIin Basline Institutions EPU and FDI inflows

Indep. Var EPUc EPUmc

Long-run effects

GDPg 0.571*** 0.992*** 1.383*** 1.361***

[0.157] [0.208] [0.388] [0.478]
Inf 0.402 0.440 0.871 1.208
[0.303] [0.311] [0.535] [0.766]
Cap ¡0.454*** ¡0.539*** ¡0.664*** ¡0.779***
[0.075] [0.12] [0.148] [0.184]
HC ¡8.880*** ¡10.26*** ¡11.04*** ¡10.17**
[1.62] [3.183] [3.081] [4.771]
FD 0.064*** 0.035** 0.057*** 0.088**
[0.011] [0.017] [0.021] [0.035]
CO2 2.340 3.089* 3.639** 3.563
[1.457] [1.694] [1.768] [2.44]
ES 1.907** 1.384 1.355 1.647
[0.876] [1.063] [0.962] [1.068]
REER 16.85*** 16.79** 23.66** 30.46**
[5.292] [7.898] [11.41] [15.176]
Trade 0.073*** 0.066*** 0.061*** 0.079***
[0.009] [0.006] [0.008] [0.009]
INST 2.644** 3.571*** 2.349
[1.196] [1.368] [1.704]
EPU ¡7.331*** ¡18.88
[2.565] [12.201]

Observations 205 205 205 205

No. of countries 21 21 21 21
No of IVs 17 17 18 18
AR(2) (p-value) 0.744 0.666 0.448 0.340
Hansen test (p-value) 0.228 0.589 0.665 0.355

Note: Standard errors are in []. *, **, *** are significant levels at 10%, 5%, 1%, respectively.

Table 6
World Uncertainty, Domestic Economic Policy Uncertainty and FDI inflows (Sequential (two-stage) estimation of linear panel data models).
Dep.var: FDIin WUI and FDI inflows Adjusted WUI and FDI inflows

Indep. Var: WUIc WUImc EPUc & EPUmc & Adjusted Adjusted EPUc & Adjusted EPUmc & Adjusted
WUIc WUImc WUIc WUImc WUIc WUImc

L.FDIin 0.481*** 0.543*** 0.525*** 0.588*** 0.481*** 0.542*** 0.514*** 0.586***

[0.057] [0.052] [0.051] [0.048] [0.057] [0.052] [0.051] [0.048]
GDPg 0.600*** 0.679*** 0.655*** 0.572*** 0.598*** 0.682*** 0.636*** 0.575***
[0.089] [0.092] [0.109] [0.094] [0.088] [0.092] [0.113] [0.093]
Inf 0.131 0.083 0.117 0.206 0.136 0.086 0.135 0.204
[0.260] [0.217] [0.226] [0.215] [0.263] [0.216] [0.237] [0.214]
Cap ¡0.323*** ¡0.338*** ¡0.346*** ¡0.303*** 0.324*** 0.339*** 0.343*** 0.303***
[0.059] [0.066] [0.057] [0.062] [0.058] [0.066] [0.057] [0.062]
HC ¡5.496*** ¡5.223*** ¡5.710*** ¡5.253*** 5.511*** 5.237*** 5.750*** 5.262***
[1.907] [1.626] [1.544] [1.518] [1.914] [1.634] [1.606] [1.526]
FD 0.018 0.015 0.019* 0.017 0.018 0.015 0.019* 0.017
[0.012] [0.011] [0.011] [0.011] [0.012] [0.011] [0.011] [0.011]
CO2 1.945** 1.988** 2.204*** 1.920** 1.957** 2.001** 2.196*** 1.916**
[0.878] [0.899] [0.803] [0.818] [0.869] [0.905] [0.798] [0.822]
ES 0.687 0.466 0.663 0.543 0.689 0.472 0.689 0.546
[0.646] [0.606] [0.554] [0.490] [0.648] [0.605] [0.562] [0.489]
REER 8.303* 8.589** 8.236* 8.775** 8.343* 8.620** 8.219* 8.764**
[4.621] [3.945] [4.297] [4.038] [4.640] [3.910] [4.460] [4.000]
Trade 0.033*** 0.027*** 0.030*** 0.027*** 0.033*** 0.027*** 0.031*** 0.027***
[0.006] [0.006] [0.005] [0.005] [0.006] [0.006] [0.005] [0.005]
INST 1.145 1.063* 1.151* 1.209** 1.152 1.067* 1.177* 1.207**
[0.713] [0.635] [0.643] [0.586] [0.716] [0.644] [0.667] [0.592]
EPU ¡0.489 0.029 0.485 0.050
[0.512] [0.956] [0.511] [0.958]
WUI 0.588* 1.192** 0.654* 0.955* 0.586* 1.158** 0.672* 0.934*
[0.301] [0.489] [0.340] [0.499] [0.310] [0.485] [0.355] [0.500]
Constant 23.455 24.495 22.495 26.601 23.639 24.630 22.493 26.523
[19.759] [17.437] [18.962] [18.329] [19.841] [17.203] [19.651] [18.084]

(continued on next page)

168
N.P. Canh et al. International Economics 161 (2020) 159–172

Table 6 (continued )
Dep.var: FDIin WUI and FDI inflows Adjusted WUI and FDI inflows

Indep. Var: WUIc WUImc EPUc & EPUmc & Adjusted Adjusted EPUc & Adjusted EPUmc & Adjusted
WUIc WUImc WUIc WUImc WUIc WUImc

Long-run effects

GDPg 1.157*** 1.487*** 1.377*** 1.39*** 1.152*** 1.489*** 1.309*** 1.387***

[0.265] [0.302] [0.326] [0.319] [0.265] [0.3] [0.324] [0.313]
Inf 0.253 0.183 0.246 0.501 0.261 0.188 0.277 0.493
[0.478] [0.459] [0.453] [0.479] [0.482] [0.454] [0.464] [0.474]
Cap 0.624*** 0.74*** 0.727*** 0.735*** 0.624*** 0.739*** 0.706*** 0.73***
[0.106] [0.132] [0.121] [0.14] [0.105] [0.131] [0.119] [0.138]
HC 10.59*** 11.43*** 12.01*** 12.763*** 10.61*** 11.42*** 11.841*** 12.694***
[3.142] [2.991] [2.852] [3.204] [3.151] [3.01] [2.9] [3.22]
FD 0.034* 0.033 0.04** 0.041* 0.034* 0.033 0.039** 0.041*
[0.02] [0.021] [0.019] [0.023] [0.02] [0.021] [0.019] [0.023]
CO2 3.75** 4.355** 4.635*** 4.666** 3.770** 4.364** 4.522*** 4.622**
[1.644] [1.909] [1.68] [1.958] [1.627] [1.918] [1.64] [1.955]
ES 1.325 1.021 1.394 1.32 1.328 1.029 1.418 1.316
[1.173] [1.263] [1.105] [1.116] [1.174] [1.257] [1.095] [1.108]
REER 16.005** 18.811*** 17.322** 21.319*** 16.07** 18.80*** 16.926** 21.144***
[7.532] [6.953] [7.825] [8.077] [7.551] [6.867] [7.972] [7.971]
Trade 0.064*** 0.059*** 0.062*** 0.066*** 0.064*** 0.059*** 0.064*** 0.066***
[0.007] [0.008] [0.006] [0.007] [0.007] [0.008] [0.006] [0.007]
INST 2.206* 2.329* 2.421* 2.937** 2.219* 2.327* 2.423* 2.912**
[1.266] [1.289] [1.277] [1.301] [1.27] [1.309] [1.287] [1.317]
EPU 1.029 0.071 0.999 0.121
[1.054] [2.328] [1.028] [2.321]
WUI 1.134* 2.61** 1.375* 2.321* 1.128* 2.527** 1.385* 2.253*
[0.634] [1.13] [0.75] [1.219] [0.651] [1.112] [0.77] [1.21]

Observations 205 205 205 205 205 205 205 205

No. of countries 21 21 21 21 21 21 21 21
No of IVs 18 18 19 19 18 18 19 19
AR(2) (p-value) 0.635 0.541 0.543 0.558 0.632 0.542 0.558 0.560
Hansen test (p- 0.514 0.589 0.430 0.532 0.515 0.594 0.429 0.532
value)

Note: Standard errors are in []. *, **, *** are significant levels at 10%, 5%, 1%, respectively.

level of domestic EPU has, as expected, a significant negative influence on FDI inflows. In the same vein, an increase in the level of global
EPU shows a significant positive effect on FDI inflows. Moreover, this study shows that when both domestic and global EPU increase,
only the impact of global uncertainty is still positive and significant, independently of the domestic context. In other words, our
empirical study identifies a systematic aversion toward global uncertainty. We associated this observation with an anchor bias through
which, even though the domestic uncertainty of a particular country might be higher than the global one, the ability of defining and
anchoring it to a specific context appears to be the most important driver for investors. A lower ill-defined global uncertainty might
make investors more nervous than a higher but well-defined (i.e. geographically contextualized) uncertainty.

Appendix

Table A1
Country list

Australia Chile France Ireland Korea, Rep. Russian Federation Sweden

Brazil China Germany Italy Mexico Singapore United Kingdom
Canada Colombia Greece Japan Netherlands Spain United States

Table A2
Primary data

Variable Sources Obs Mean Std. Dev. Min Max

Foreign direct investment, net inflows (% of GDP) WDI 231 5.422 9.106 5.671 87.443
Real GDP growth (annual %) WDI 231 2.703 3.641 9.132 15.240
Inflation, GDP deflator (annual %) WDI 231 3.214 3.818 5.010 23.642
Gross capital formation (% of GDP) WDI 231 23.788 6.093 11.601 47.686
Human capital index, based on years of schooling and returns to education PWT 9.0 231 3.090 0.436 2.170 3.726
Domestic credit provided by financial sector (% of GDP) WDI 226 139.54 67.85 20.81 338.15
CO2 emissions (metric tons per capita) WDI 231 8.591 4.532 1.289 19.658
Primary Energy production (MTOE) U.S. EIA 231 342.70 586.13 0.00 2620.28
(continued on next page)

169
N.P. Canh et al. International Economics 161 (2020) 159–172

Table A2 (continued )
Variable Sources Obs Mean Std. Dev. Min Max

Primary Energy consumption (MTOE) U.S. EIA 231 409.64 670.10 14.20 2991.93
Real effective exchange rate index (2010 ¼ 100) WDI 231 98.693 10.545 55.322 136.302
Trade (% of GDP) WDI 231 79.960 78.264 21.583 441.60
Control of Corruption WGI 231 1.007 1.000 1.088 2.417
Government Effectiveness WGI 231 1.103 0.776 0.459 2.431
Political Stability and Absence of Violence/Terrorism WGI 231 0.319 0.781 2.386 1.344
Regulatory Quality WGI 231 1.082 0.681 0.412 1.976
Rule of Law WGI 231 0.959 0.909 0.952 1.966
Voice and Accountability WGI 231 0.777 0.840 1.687 1.751
Country Economic Policy Uncertainty index www.policyuncertainty.com 231 117.28 63.060 15.295 358.994
Note: WDI is World Development Indicators database, WGI is World Governance Indicators database of World Bank (2018); PWT 9.0 is Penn World
Table; U.S. EIA is U.S. Energy Information Administration. Data of Economic Policy Uncertainty is collected from www.polityuncertainty.com provided
by Scott R. Baker et al. (2018).
Table A3
Domestic Economic Policy Uncertainty and FDI inflows (Twostep system GMM estimations)

Dep.var: FDIin Basline Institutions EPU and FDI inflows

Indep. Var EPUc EPUmc

L.FDIin 0.232*** 0.218*** 0.278*** 0.429***

[0.010] [0.010] [0.022] [0.058]
GDPg 0.895*** 0.845*** 0.970*** 0.942***
[0.035] [0.051] [0.079] [0.082]
Inf 0.008 0.080 0.315* 0.029
[0.126] [0.117] [0.160] [0.205]
Cap ¡0.547*** ¡0.500*** ¡0.673*** ¡0.694***
[0.046] [0.044] [0.066] [0.156]
HC ¡7.286*** ¡9.700*** ¡18.269*** ¡15.209***
[1.092] [1.347] [3.657] [4.907]
FD 0.045*** 0.040*** 0.038*** 0.027*
[0.004] [0.003] [0.007] [0.014]
CO2 3.760*** 4.089*** 6.256*** 6.617***
[0.752] [0.802] [1.625] [2.118]
ES 1.832*** 2.179*** 1.185 0.293
[0.584] [0.701] [0.756] [1.161]
REER 10.118 6.949 29.930*** 4.434
[9.733] [9.112] [10.433] [12.343]
Trade 0.047*** 0.043*** 0.032*** 0.021
[0.003] [0.003] [0.005] [0.014]
INST 1.889** 4.201*** 2.707**
[0.722] [1.035] [0.952]
EPU ¡2.053*** ¡8.888***
[0.503] [2.273]
Constant 27.939 8.697 89.715* 23.439
[43.309] [41.128] [46.125] [67.085]

Long run effects

GDPg 1.165*** 1.08*** 1.343*** 1.652***

[0.054] [0.071] [0.124] [0.26]
Inf 0.010 0.102 0.436** 0.051
[0.164] [0.149] [0.218] [0.357]
Cap ¡0.712*** ¡0.639*** ¡0.931*** ¡1.216***
[0.065] [0.061] [0.117] [0.382]
HC ¡9.483*** ¡12.40*** ¡25.29*** ¡26.65**
[1.497] [1.803] [5.61] [11.08]
FD 0.058*** 0.051*** 0.053*** 0.048**
[0.005] [0.004] [0.008] [0.021]
CO2 4.893*** 5.229*** 8.662*** 11.59**
[1.003] [1.038] [2.408] [4.673]
ES 2.384*** 2.786*** 1.641 0.514
[0.76] [0.892] [1.026] [1.995]
REER 13.17 8.886 41.44*** 7.771
[12.714] [11.675] [14.831] [21.33]
Trade 0.061*** 0.055*** 0.045*** 0.036*
[0.004] [0.004] [0.007] [0.021]
INST 1.165*** 2.415*** 5.818*** 4.745**
[0.92] [1.476] [1.998]
EPU ¡2.842*** ¡15.57***
(continued on next page)

170
N.P. Canh et al. International Economics 161 (2020) 159–172

Table A3 (continued )
Dep.var: FDIin Basline Institutions EPU and FDI inflows

Indep. Var EPUc EPUmc

[0.712] [4.336]

Observations 205 205 205 205

No. of countries 21 21 21 21
No of IVs 22 23 24 24
AR(2) (p-value) 0.901 0.945 0.273 0.531
Hansen test (p-value) 0.178 0.280 0.728 0.383
Note: Standard errors are in []. *, **, *** are significant levels at 10%, 5%, 1%, respectively.

Appendix B. Supplementary data

Supplementary data to this article can be found online at https://doi.org/10.1016/j.inteco.2019.11.012.

References

Agarwal, J.P., 1980. Determinants of foreign direct investment: a survey. Weltwirtschaftliches Archiv 116 (4), 739–773.
Ahir, H., Bloom, N., Furceri, D., 2019. The World Uncertainty Index.
Amal, M., 2016. Chapter 2 - determinants of foreign direct investment: theoretical approaches. In: Amal, M. (Ed.), Foreign Direct Investment in Brazil. Academic Press,
San Diego, pp. 9–62.
Anderson, T.W., Hsiao, C., 1982. Formulation and estimation of dynamic models using panel data. J. Econom. 18 (1), 47–82.
Arellano, M., Bond, S., 1991. Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Rev. Econ. Stud. 58 (2),
277–297.
Arellano, M., Bover, O., 1995. Another look at the instrumental variable estimation of error-components models. J. Econom. 68 (1), 29–51. https://doi.org/10.1016/
0304-4076(94)01642-D.
Armah, M.K., Fosu, P., 2018. Infrastructure and foreign direct investment inflows: evidence from Ghana. Management and Economic Journal 93–106.
Arouri, M., Estay, C., Rault, C., Roubaud, D., 2016. Economic policy uncertainty and stock markets: long-run evidence from the US. Financ. Res. Lett. 18, 136–141.
https://doi.org/10.1016/j.frl.2016.04.011.
Asiedu, E., 2002. On the determinants of foreign direct investment to developing countries: is Africa different? World Dev. 30 (1), 107–119.
Aziz, O.G., 2018. Institutional quality and FDI inflows in Arab economies. Financ. Res. Lett. 25, 111–123. https://doi.org/10.1016/j.frl.2017.10.026.
Baker, S.R., Bloom, N., Davis, S.J., 2016. Measuring economic policy uncertainty. Q. J. Econ. 131 (4), 1593–1636.
Baker, S.R., Bloom, N., Davis, S.J., 2018. Economic policy uncertainty. Retrieved from. http://www.policyuncertainty.com/.
Bansal, R., Kiku, D., Shaliastovich, I., Yaron, A., 2014. Volatility, the macroeconomy, and asset prices. J. Financ. 69 (6), 2471–2511.
Benassy-Quer
e, A., Coupet, M., Mayer, T., 2007. Institutional determinants of foreign direct investment. World Econ. 30 (5), 764–782.
Bernal, O., Gnabo, J.-Y., Guilmin, G., 2016. Economic policy uncertainty and risk spillovers in the Eurozone. J. Int. Money Financ. 65, 24–45. https://doi.org/10.1016/
j.jimonfin.2016.02.017.
Bevan, A.A., Estrin, S., 2004. The determinants of foreign direct investment into European transition economies. J. Comp. Econ. 32 (4), 775–787.
Biswas, R., 2002. Determinants of foreign direct investment. Rev. Dev. Econ. 6 (3), 492–504.
Blomstr€ om, M., Kokko, A., Mucchielli, J.-L., 2003. The economics of foreign direct investment incentives. In: Foreign Direct Investment in the Real and Financial Sector
of Industrial Countries. Springer, pp. 37–60.
Blonigen, B.A., Piger, J., 2014. Determinants of foreign direct investment. Canadian Journal of Economics/Revue canadienne d’economique 47 (3), 775–812.
Bloom, N., 2009. The impact of uncertainty shocks. Econometrica 77 (3), 623–685.
Blundell, R., Bond, S., 1998. Initial conditions and moment restrictions in dynamic panel data models. J. Econom. 87 (1), 115–143. https://doi.org/10.1016/S0304-
4076(98)00009-8.
Bonaime, A., Gulen, H., Ion, M., 2018. Does policy uncertainty affect mergers and acquisitions? J. Financ. Econ. 129 (3), 531–558. https://doi.org/10.1016/
j.jfineco.2018.05.007.
Bordo, M.D., Duca, J.V., Koch, C., 2016. Economic policy uncertainty and the credit channel: aggregate and bank level U.S. evidence over several decades. J. Financ.
Stab. 26, 90–106. https://doi.org/10.1016/j.jfs.2016.07.002.
Brada, J.C., Drabek, Z., Mendez, J.A., Perez, M.F., 2018. National levels of corruption and foreign direct investment. J. Comp. Econ. https://doi.org/10.1016/
j.jce.2018.10.005.
Caggiano, G., Castelnuovo, E., Figueres, J.M., 2017. Economic policy uncertainty and unemployment in the United States: a nonlinear approach. Econ. Lett. 151, 31–34.
https://doi.org/10.1016/j.econlet.2016.12.002.
Carri

ere-Swallow, Y., C espedes, L.F., 2013. The impact of uncertainty shocks in emerging economies. J. Int. Econ. 90 (2), 316–325.
Castro, P.G.d., Fernandes, E.A., Campos, A.C., 2013. The determinants of foreign direct investment in Brazil and Mexico: an empirical analysis. Procedia Economics and
Finance 5, 231–240. https://doi.org/10.1016/S2212-5671(13)00029-4.
Cheng, C.H.J., 2017. Effects of foreign and domestic economic policy uncertainty shocks on South Korea. J. Asian Econ. 51, 1–11. https://doi.org/10.1016/
j.asieco.2017.05.001.
Choi, I., 2001. Unit root tests for panel data. J. Int. Money Financ. 20 (2), 249–272.
Choudhry, T., 2019. Economic policy uncertainty and house prices: evidence from geographical regions of england and wales. Real Estate Econ. https://doi.org/
10.1111/1540-6229.12266. In press.
Christiano, L.J., Motto, R., Rostagno, M., 2014. Risk shocks. Am. Econ. Rev. 104 (1), 27–65.
Colombo, V., 2013. Economic policy uncertainty in the US: does it matter for the Euro area? Econ. Lett. 121 (1), 39–42.
Cuyvers, L., Soeng, R., Plasmans, J., Van Den Bulcke, D., 2011. Determinants of foreign direct investment in Cambodia. J. Asian Econ. 22 (3), 222–234. https://doi.org/
10.1016/j.asieco.2011.02.002.
Drobetz, W., El Ghoul, S., Guedhami, O., Janzen, M., 2018. Policy uncertainty, investment, and the cost of capital. J. Financ. Stab. 39, 28–45. https://doi.org/10.1016/
j.jfs.2018.08.005.
Globerman, S., Shapiro, D., 2002. Global foreign direct investment flows: the role of governance infrastructure. World Dev. 30 (11), 1899–1919.
Gulen, H., Ion, M., 2015. Policy uncertainty and corporate investment. Rev. Financ. Stud. 29 (3), 523–564.
Hermes, N., Lensink, R., 2003. Foreign direct investment, financial development and economic growth. J. Dev. Stud. 40 (1), 142–163.

171
N.P. Canh et al. International Economics 161 (2020) 159–172

Hu, S., Gong, D., 2018. Economic policy uncertainty, prudential regulation and bank lending. Financ. Res. Lett. https://doi.org/10.1016/j.frl.2018.09.004.
Im, K.S., Pesaran, M.H., Shin, Y., 2003. Testing for unit roots in heterogeneous panels. J. Econom. 115 (1), 53–74.
Karnizova, L., Li, J., 2014. Economic policy uncertainty, financial markets and probability of US recessions. Econ. Lett. 125 (2), 261–265. https://doi.org/10.1016/
j.econlet.2014.09.018.
Keeley, A.R., Ikeda, Y., 2017. Determinants of foreign direct investment in wind energy in developing countries. J. Clean. Prod. 161, 1451–1458. https://doi.org/
10.1016/j.jclepro.2017.05.106.
Ko, J.-H., Lee, C.-M., 2015. International economic policy uncertainty and stock prices: wavelet approach. Econ. Lett. 134, 118–122. https://doi.org/10.1016/
j.econlet.2015.07.012.
Kripfganz, S., 2017. Sequential (two-stage) estimation of linear panel-data models. In: Paper Presented at the German Stata Users’ Group Meetings 2017.
Krol, R., 2014. Economic policy uncertainty and exchange rate volatility. Int. Financ. 17 (2), 241–256.
Liu, X., Wang, C., Wei, Y., 2001. Causal links between foreign direct investment and trade in China. China Econ. Rev. 12 (2–3), 190–202.
Moore, M.O., 1993. Determinants of German manufacturing direct investment: 1980–1988. Rev. World Econ. 129 (1), 120–138.
Nguyen Thanh, B., Strobel, J., Lee, G., 2019. A new measure of real estate uncertainty shocks. Real Estate Econ.
Nickell, S., 1981. Biases in dynamic models with fixed effects. Econometrica: Journal of the Econometric Society 1417–1426.
Papke, L.E., Wooldridge, J.M., 2005. A computational trick for delta-method standard errors. Econ. Lett. 86 (3), 413–417.
Pastor, L., Veronesi, P., 2012. Uncertainty about government policy and stock prices. J. Financ. 67 (4), 1219–1264.
Pesaran, M.H., 2004. General Diagnostic Tests for Cross Section Dependence in Panels.
Pesaran, M.H., 2007. A simple panel unit root test in the presence of cross-section dependence. J. Appl. Econom. 22 (2), 265–312.
Phan, D.H.B., Sharma, S.S., Tran, V.T., 2018. Can economic policy uncertainty predict stock returns? Global evidence. J. Int. Financ. Mark. Inst. Money 55, 134–150.
https://doi.org/10.1016/j.intfin.2018.04.004.
Raluca, D.A., Alecsandru, S.V., 2012. Main determinants of foreign direct investments in Romania - a quantitative view of the regional characteristics involved in the
investment strategies of foreign companies. Procedia - Social and Behavioral Sciences 58, 1193–1203. https://doi.org/10.1016/j.sbspro.2012.09.1101.
Roodman, D., 2006. How to Do Xtabond2: an Introduction to Difference and System GMM in Stata. Center for Global Development Working Paper, No. 103.
Schinckus, C., 2009. Economic uncertainty and econophysics. Physica A 388 (20), 4414–4423.
Schneider, F., Frey, B.S., 1985. Economic and political determinants of foreign direct investment. World Dev. 13 (2), 161–175.
Strobel, J., Nguyen Thanh, B., Lee, G., 2018. Effects of Macroeconomic Uncertainty and Labor Demand Shocks on the Housing Market. Real Estate Economics. In press.
Tam, P.S., 2018. Global trade flows and economic policy uncertainty. Appl. Econ. 50 (34–35), 3718–3734.
Thanh, B.N., 2019. Macroeconomic uncertainty, the option to wait and IPO issue cycles. Financ. Res. Lett. https://doi.org/10.1016/j.frl.2019.01.012. In press.
Tversky, A., Kahneman, D., 1974. Judgement under uncertainty: heuristics and biases. Science 185 (4157), 1124–1131. https://doi.org/10.1126/
science.185.4157.1124.
Windmeijer, F., 2005. A finite sample correction for the variance of linear efficient two-step GMM estimators. J. Econom. 126 (1), 25–51. https://doi.org/10.1016/
j.jeconom.2004.02.005.
Xu, T., 2019. Economic freedom and bilateral direct investment. Econ. Modell. 78 (May 2019), 172–179. https://doi.org/10.1016/j.econmod.2018.09.017.

172