Foreign direct investment and economic policy uncertainty in China

Abstract

The trend of foreign direct investment (FDI) in China has switched from inflow to outflow following the rapid economic growth during the past several decades. Stimulated by government policies, in recent years China’s firms have actively sought overseas investment opportunities. This paper examines the relationship between economic policy uncertainty (EPU) and cross-border capital flow decisions for listed firms in China. Our findings demonstrate that EPU originating from China does not seem to dissuade FDI inflow into China, but it does curtail FDI outflow from the country. It appears that government policies and the uncertainty the policies bring are deterministic for FDI.