Multinational investment activity under policy uncertainty in host and competing countries
Abstract
Policy uncertainty challenges multinational corporations seeking stable destinations for Foreign Direct Investment (FDI). This study examines the influence of economic policy uncertainty in both potential host countries and competitor nations. Analyzing firm-destination data, we find that higher economic policy uncertainty in host countries discourages greenfield FDI inflows by US multinationals. Conversely, higher economic policy uncertainty in competing destinations presents an attractive alternative, leading to increased FDI inflows. Notably, competitor uncertainty's influence has grown in recent years following the uneven rise in global economic policy uncertainty. Our findings highlight the competitive advantage associated with policy stability and predictability for attracting FDI.