Economics Assignment, UON, Malaysia Trade policy uncertainty in major economies increased to a historically high level in 2019 and has hardly been resolved
University | University of Nottingham (UON) |
Subject | Economics |
Trade policy uncertainty in major economies increased to a historically high level in 2019 and has hardly been resolved. As existing studies show that policy uncertainty could delay and impede investments in a closed economy, does TPU in major economies have an impact on global foreign direct investment (FDI) flows?
How does TPU in major economies affect global FDI flows? To answer these questions, new empirical evidence not only broadens our understanding of the nexus between policy uncertainty and investment from a global perspective, but it is also relevant for helping global FDI flows recover from the current pandemic.
In this paper, we examine the effects of TPU on FDI activities by exploiting a quasi-natural experiment brought about by China’s accession to the World Trade Organization (WTO), and our findings contribute to the literature in three ways.
First, to the best of our knowledge, this is the first paper to study the effects of TPU reduction in the export destination market on FDI inflows of the exporting country, and on FDI inflows from third countries. Second, we propose and test a new channel through which FDI into the recipient country increases due to the reduction in TPU in its export destination markets. Third, our research setting allows for a credible identification strategy to study the effects of TPU on FDI.
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