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Theoretical and Applied Economics
No. 1 / 2018 (614), Spring

Macroeconomic uncertainty and FDI in developing countries

Pradeep Kumar DAS
Department of Economics, Pondicherry University, India

Abstract. In this research analysis, the main aspect is to estimate the macroeconomic uncertainty and its impact on Foreign Direct Investment. Keeping in view of the rising importance of developing countries in attracting Foreign Direct Investment (FDI), this study has included 28 developing countries for the empirical analysis. At first, Macroeconomic uncertainty is measured with the help of conditional variance technique i.e. ARCH (GARCH). After measuring the macroeconomic uncertainty, impact of macroeconomic uncertainty along with other macroeconomic variables on the FDI flow is analyzed. Relying on the non-dynamic panel threshold model, the presence of single threshold value is found. The impact of macroeconomic uncertainty on FDI is found to be varied with the change in the level of income of the concerned host country. Others factors like GDP growth, Trade Openness and FDI stock are found to be statistically significant in influencing FDI flow towards an economy.

Keywords: macroeconomic uncertainty, ARCH (GACRH), Foreign Direct Investment (FDI), developing countries.

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