Estimating The Effect of Macroeconomic Volatility on Different Types of FDI

Authors

Zahra Btool(1) Zahra Btool Affiliation MPhil Economics, Department of Economics, Government College University Faisalabad, Faisalabad, Pakistan Other articles by this author , Muhammad Faraz Riaz(2) Muhammad Faraz Riaz Corresponding author Affiliation Assistant Professor, Department of Economics, Government College University Faisalabad, Faisalabad, Pakistan Email addressfaraz.riaz@gcuf.edu.pk Other articles by this author , Sadia Ali(3) Sadia Ali Affiliation Assistant Professor, Department of Economics, Government College University Faisalabad, Faisalabad, Pakistan Other articles by this author , Anam Shehzadi(4) Anam Shehzadi Affiliation Lecturer, Department of Economics, Government College University Faisalabad, Faisalabad, Pakistan Other articles by this author

  1. MPhil Economics, Department of Economics, Government College University Faisalabad, Faisalabad, Pakistan
  2. Assistant Professor, Department of Economics, Government College University Faisalabad, Faisalabad, Pakistan
  3. Assistant Professor, Department of Economics, Government College University Faisalabad, Faisalabad, Pakistan
  4. Lecturer, Department of Economics, Government College University Faisalabad, Faisalabad, Pakistan

https://doi.org/10.36923/jcmi.v5i1.602

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Abstract

Using a panel data from 111 countries from 2003 to 2021 the study attempts to analyze the effect of macroeconomic volatility on different types of FDI (Foreign Direct Investment) inflows. GARCH variances of GDP per capita are used to model the macroeconomic volatility and to further estimates the effect of this volatility on different types of FDI the study utilized system GMM (Generalized Method of Moments). The results indicate that macroeconomic volatility has a negative and significant impact on the total stock of FDI, FDI through mergers and acquisitions, and greenfield investment. We have also found that the macroeconomic volatility is non-linearly related with various types of FDI in different groups of countries according to their trade openness. The findings suggest that policy makers need promote a stable economic environment to avoid macroeconomic volatility and consequently the curtailing levels of FDI inflows.

Article information

Keywords
FDImacroeconomic volatilityGARCHGMMtrade openness
Section
Articles
Issue
Vol. 5 No. 1 (2024)
Submitted
November 29, 2024
Accepted
December 27, 2024
Published
June 14, 2024
Corresponding author
Muhammad Faraz Riaz
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