Economic policy uncertainty and foreign investment in emerging economies : an empirical study for Brazil, Chile, Colombia, and Greece

Abstract

Uncertainty about future economic outcomes and policies has been identified as a cause of decrease in activity and investment in recent years. In particular, a group of literature searches for transmission mechanisms that explain these drops. This study focuses on the effects of shocks in the Economic Policy Uncertainty Index developed by Baker, Bloom, and Davis (2016) on Foreign Direct Investment and Portfolio Investment for Brazil, Chile, Colombia, and Greece, using the Structural VAR methodology with short-run restrictions and macroeconomic controls. The estimated effects are negative for both measures of foreign investment (in line with previous research). However, the lack of statistical significance prevents us from concluding the finding of a new mechanism.