Ma oz a, God ey; Magwede e, Ma ga e Ru endo
A icle
Unce ain y, FDI in lows, and inancial ma ke
de elopmen : Empi ical e idence
Economies
P o ided in Coope a ion wi h:
MDPI – Mul idisciplina y Digi al Publishing Ins i u e, Basel
Sugges ed Ci a ion: Ma oz a, God ey; Magwede e, Ma ga e Ru endo (2025) : Unce ain y, FDI
in lows, and inancial ma ke de elopmen : Empi ical e idence, Economies, ISSN 2227-7099, MDPI,
Basel, Vol. 13, Iss. 6, pp. 1-12,
h ps://doi.o g/10.3390/economies13060147
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Ci a ion: Ma oz a, G., & Magwede e,
M. R. (2025). Unce ain y, FDI In lows,
and Financial Ma ke De elopmen :
Empi ical E idence. Economies,13(6),
147. h ps://doi.o g/10.3390/
economies13060147
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A icle
Unce ain y, FDI In lows, and Financial Ma ke De elopmen :
Empi ical E idence
God ey Ma oz a * and Ma ga e Ru endo Magwede e
Depa men o Finance, Risk Managemen and Banking, Uni e si y o Sou h A ica,
P e o ia P.O. Box 392, Sou h A ica; [email p o ec ed]
*Co espondence: [email p o ec ed]
Abs ac : This s udy o e s insigh in o he mul i ace ed ela ionship be ween economic
policy unce ain y, o eign di ec in es men , and inancial de elopmen . I analyzes
he e ec s o economic policy unce ain y and inancial de elopmen on o eign di ec
in es men (FDI) in lows, using a sample o 75 eme ging ma ke s and de eloping coun ies,
o e 2000–2023. To achie e his, a pooled mean g oup (PMG) was used, and he inding
o his s udy o his pe iod is a posi i e long- e m ela ionship be ween economic policy
unce ain y and o eign di ec in es men s in lows, challenging he adi ional iew ha
unce ain y de e s in es men . In he long e m, he join e ec s o inancial de elopmen
and economic policy educed o eign di ec in es men s. These indings highligh he
c i ical ole o inancial de elopmen in shaping he long- e m impac o unce ain y on FDI,
and hey unde sco e he need o policy o enhance inancial sys ems in o de o s abilize
and sus ain FDI in lows in unce ain en i onmen s.
Keywo ds: o eign di ec in es men ; economic policy unce ain y; inancial de elopmen ;
s abili y; panel da a; au o eg essi e dis ibu ed; coin eg a ion
1. In oduc ion
S able and p edic able policies a e essen ial o o eign di ec in es men , and mo e so
in eme ging and de eloping economies. In eme ging and de eloping economies, o eign
di ec in es men s (FDI) a e ecognized as a ca alys o economic g ow h and de elopmen
(Aus e al.,2020). Fo eign di ec in es men is essen ial o eme ging ma ke s as i is an
engine o g ow h, p o iding access o capi al, echnology, and expe ise ha can boos p o-
duc i i y and economic de elopmen (Emako e al.,2023). A ac i e ex ac i e indus ies,
popula ion g ow h, and ising consump ion pa e ns ha e emained a magne o o eign
in es o s in eme ging and de eloping economies (Adegboye & Oko ie,2023). Howe e ,
capi al ligh o sa e des ina ions wi h s able economic policies emains an al e na i e
ade-o o in es o s (Nguyen & Lee,2021). Unde pe iods o unce ain y, in es men cap-
i al ends o ly o quali y, wi h e ec s on he inancial de elopmen o domes ic economies.
Economic policy unce ain y inc eases he ola ili y o capi al lows such ha in pe iods
o high economic policy unce ain y, coun ies wi h weak ins i u ional amewo ks can
expe ience lowe capi al in low. S udies on unce ain y ha e mainly been mo e a ailable
on he mic o le el (i.e., he i m le el) a he han on he mac o le el, mainly due o he
non-a ailabili y o da a on unce ain y measu es a he mac o le el and ac oss coun ies.
Mos eme ging and de eloping ma ke s’ EMDEs ha e e y low en y poin s in he
deb s and equi y ma ke s, which o e a ac i e en y poin s o in es o s (Amo oso
& Mülle ,2018). The ma ke capi aliza ion in mos EMDEs is lowe , o e ing po en ial
Economies 2025,13, 147 h ps://doi.o g/10.3390/economies13060147
Economies 2025,13, 147 2 o 12
o g ow h o mos in es o s. Despi e his oppo uni y o in es o s in eme ging and
de eloping ma ke s, he po en ial o o eign di ec in es men in lows emains e y low
in hese economies. No wi hs anding EMDEs being endowed wi h na u al esou ces and
cheap labo , he ma ginal p oduc i i y o capi al emains e y low and ails o a ac highe
FDI gi en he po en ial o highe in es men yields (Uni ed Na ions,2024).
Howe e , FDI in lows a e in luenced by se e al ac o s, which include he s abil-
i y o he policy en i onmen and he speci ic coun y’s le el o inancial de elopmen .
Economic policy unce ain y (EPU), which e e s o he unp edic abili y o go e nmen
ac ions ela ed o iscal, mone a y, and egula o y policies, can de e o eign in es o s by
inc easing pe cei ed isks and lowe ing he a ac i eness o in es men oppo uni ies.
On he o he hand, inancial de elopmen , cha ac e ized by a well- unc ioning inancial
sys em (including banking sec o s, capi al ma ke s, and access o c edi ), can acili a e
FDI by educing ansac ion cos s, imp o ing access o inancing, and p o iding a mo e
e icien alloca ion o esou ces (Desbo des & Wei,2017). Financial in e media ion cos s
in some eme ging and de eloping ma ke s a e highe , and hey con ibu e o he o eign
di ec in es men pa adox. Despi e he labo and na u al esou ces endowmen s, he con i-
nen is no able o a ac inancial capi al in lows. The inancial sec o s in mos o hese
coun ies a e unde de eloped. The Uni ed Na ions (2024) sugges ed ha inwa d o eign
di ec in es men in EMDEs is a pa adox as capi al is expec ed o low om coun ies wi h
low e u ns o coun ies wi h high e u ns. Howe e , in A ica, despi e he po en ial o
highe e u ns on in es men , FDI in lows emains low compa ed wi h o he egions o he
wo ld (Adegboye & Oko ie,2023). A well-de eloped inancial sys em may help cushion
he nega i e e ec s o policy unce ain y by p o iding o eign in es o s wi h easie access
o inancing, hedging oppo uni ies, and a mo e liquid ma ke . Con e sely, in coun ies
wi h low le els o inancial de elopmen , he impac o EPU may be mo e p onounced as
in es o s ace addi ional ba ie s o in es ing in unce ain en i onmen s.
While a g owing body o li e a u e has explo ed he bila e al ela ionships be ween
economic policy unce ain y (EPU), o eign di ec in es men (FDI), and inancial ma ke
de elopmen (FD), mos s udies end o examine hese linkages in isola ion, neglec ing
he complex, in e dependen dynamics among hem. Speci ically, he ole o unce ain y
as a sys emic de e minan o bo h capi al lows and inancial sec o pe o mance emains
unde explo ed, pa icula ly in he con ex o i s mode a ing e ec on he FDI– inancial
de elopmen nexus. This has mainly been due o he lack o da a on he EPU measu e,
which is con inuously imp o ing. Mo eo e , exis ing empi ical esea ch o en o e looks
he in e ac i e e ec o inancial de elopmen and unce ain y (FD ×EPU) in in luencing
economic ou comes, and ew s udies adop panel e o co ec ion amewo ks (such as PMG
models) o cap u e he long- and sho - e m asymme ies ac oss di e se coun y se ings.
This s udy add esses hese gaps by in es iga ing he iangula ela ionship be ween
EPU, FDI in lows, and inancial de elopmen , while in oducing a no el in e ac ion e m
(FD_EPU) o empi ically assess how unce ain y condi ions in luence he e ec i eness o
inancial ma ke s in abso bing and ansmi ing FDI. The o iginali y o his s udy lies in
i s in eg a ed empi ical design, he use o dynamic panel echniques, and i s emphasis on
he condi ional ole o unce ain y, o e ing new insigh s o bo h heo y de elopmen and
policy design in eme ging and de eloped economies alike.
Despi e he widely acknowledged iew ha EPU nega i ely a ec s FDI, i is unclea
how he le el o inancial de elopmen in luences his ela ionship; ha is, he in e ac ion
be ween EPU and inancial de elopmen is less well unde s ood. This s udy seeks o
p o ide empi ical analysis on he long- e m impac o inancial sec o de elopmen and
unce ain y on o eign di ec in es men in lows. Mo eo e , his s udy seeks o answe he
ques ions o how economic policy unce ain y (EPU) a ec s he o eign di ec in es men o
Economies 2025,13, 147 3 o 12
hos coun ies, as well as ha o he ole o local inancial ma ke s in media ing he po en ial
bene i s. A. Dixi (2011) a gued ha o eign di ec in es men is he o m o capi al low
ha is mos exposed o he hos coun ies’ poli ical and ins i u ional unce ain y. Al hough
eme ging ma ke s and de eloping economies a e a ac i e o o eign in es o s because o
hei highe in es men yields, he low o capi al in o hese s a es emains low. P e ious
s udies ha e mainly ocused on he long- e m de e minan s o FDI; howe e , e en s such
as he global inancial c isis, B exi , he COVID-19 pandemic, and he Russian annexa ion
o Uk aine, among o he s, shows ha sho - e m e ec s such as unce ain y can ha e a
signi ican e ec on FDI in lows. This s udy also seeks o expand he li e a u e on he
de e minan s o FDI in eme ging ma ke s and de eloping economies.
This s udy is o ganized as ollows: he heo e ical and empi ical li e a u e unde pin-
ning he a icle a e discussed in Sec ion 2; ou me hodology is p esen ed in Sec ion 3, in
which we desc ibe he da a and he model speci ica ion; he esul s o he ne o eign di ec
in es men in lows and economic policy unce ain y a e p esen ed in Sec ion 4, in which
we u he analyze he mode a ing ole o inancial de elopmen ; and Sec ion 5p esen s
a discussion o he esul s and concludes his s udy, p o iding a summa y o he policy
implica ions.
2. Li e a u e Re iew
In his sec ion, a de ailed explo a ion in o he heo e ical and empi ical li e a u e
on o eign di ec in es men , economic policy unce ain y, and inancial de elopmen is
p o ided. This sec ion also discusses he media ing ole o inancial de elopmen wi h
espec o FDI. The e is an expec a ion ha economic policy unce ain y nega i ely a ec s
o eign di ec in es men .
2.1. Theo e ical Li e a u e
In examining he long- and sho - e m ela ionships be ween o eign di ec in es men
in lows, economic policy unce ain y, and inancial de elopmen , his s udy is guided by
he eal op ions heo y (ROT). The eal op ions heo y es ima es an in es men p ojec
ha is dependen on eal asse s o suppo a i m’s decision p ocess o capi al budge
planning (A. K. Dixi & Pindyck,1994;T igeo gis,1996). This heo y assumes ha he e a e
h ee main ac o s o conside in in es men decision-making; hese a e he i e e sibili y
o in es men s, unce ain y, and he iming o in es men s (Ca u h e al.,2000). Real
op ions heo y b ings he heo y o inancial op ions om he capi al ma ke s o he ealm
o in es men and s a egic decision-making unde condi ions o unce ain y (T igeo gis,
1996). The ole o unce ain y in a ec ing o eign di ec in es men has also been a i med
by Be nanke (1983). High unce ain y encou ages i ms o delay in es men when he
in es men s a e i e e sible o cos ly o e e se. Theo is s ha e equa ed he in es men
decision o exe cising a inancial op ion whe e high unce ain y inc eases he alue o
wai ing (S okey,2016). The ROT s a es ha in es o s ha e he igh , bu no he obliga ion,
o ake a speci ic u u e in es men decision a a speci ied cos (T igeo gis,1996;Bloom
e al.,2007). Thus, in es o s can delay, in es , o abandon in es men s based on changing
economic and ins i u ional condi ions (Be nanke,1983;Bake e al.,2016). Delaying in es -
men s allows one o a oid commi ing capi al in an en i onmen whe e u u e e u ns a e
unclea . Unde hese condi ions, he in low o o eign di ec in es men is a ec ed. Thus,
a o able and s able economic policy en i onmen s educe he wai ing pe iod o in es o s
and encou age inc eased in lows o o eign di ec in es men s (Be nanke,1983). The p e i-
ous heo e ical amewo k on FDI based on owne ship, loca ion, and in e na ionaliza ion
(OLI) by Dunning (1977,1979) was c i icized because loca ion and in e na ionaliza ion a e
hough o all away in pe iods o high economic policy unce ain y (Hsieh e al.,2019).
Economies 2025,13, 147 4 o 12
The key obse a ion in he heo y is ha pe iods o high and sus ained economic policy
unce ain y may esul in delays o, o he abandonmen o , o eign di ec in es men s
(Zhang e al.,2023). The e is no uni ied heo y on o eign di ec in es men , economic
policy unce ain y, and inancial de elopmen .
2.2. Empi ical Li e a u e
Al hough o eign di ec in es men is ipped o be he mos s able o he o eign capi al
lows, i is also highly suscep ible o economic policy unce ain y and high ixed cos s
(Choi e al.,2021). Bloom (2009) a gued ha unce ain y inc eases he wai ing cos s o
in es o s. High EPU leads in es o s o delay o educe FDI as hey p e e o wai o clea e
policy signals be o e capi al commi men s; high policy unce ain y means highe pe cei ed
isk, and in es o s pos pone en e ing ma ke s wi h highe pe cei ed isks (Nguyen &
Lee,2021). This inc eases he cos o capi al and educes he a ac i eness o long- e m
in es men s such as FDI (Choi e al.,2021). Despi e he economic bene i s o o eign
di ec in es men , such as economic g ow h and echnological ans e , among o he s,
unce ain y inc eases he complexi y o FDI in eme ging and de eloping economies (Hsieh
e al.,2019). Unce ain y inc eases he complexi y o doing business o mul ina ional
en e p ises (MNEs) due o challenges in p edic ing he u u e ends in go e nmen policy
and economic ou comes (Bloom e al.,2007).
In o he s udies, inancial de elopmen is a gued as he channel h ough which policy
unce ain y a ec s o eign di ec in es men in lows (Nguyen & Lee,2021). Hence, his
s udy also examined he media ing e ec s o he inancial de elopmen o he FDI–EPU
nexus. Choi e al. (2021) a gued ha inancial de elopmen is he mos impo an channel
ha a ec s o eign di ec in es men in lows. In his ega d, i is hough ha coun ies
wi h de eloped inancial ma ke s o e in es o s’ al e na i e access o unding and isk
managemen op ions (Canh e al.,2020); a well-de eloped inancial sys em mi iga es he
e ec s o economic policy unce ain y (Ka aman & Yıldı ım-Ka aman,2019;Choi e al.,
2021). This implies ha highe inancial de elopmen has he po en ial o inc ease FDI as
in es o s ha e inc eased access o capi al ma ke s; hus, hey ha e access o insu ance o
hedge agains isks, educing he op ion alue o delaying o abandoning an in es men
decision (Li & Rugman,2007;Canh e al.,2020). Howe e , i is expec ed ha a pe iod o
highe unce ain y has he po en ial o lowe o eign di ec in es men in lows. Unce ain y
is no only associa ed wi h downside isks bu also wi h po en ial u u e oppo uni ies (Li
& Rugman,2007). In mos p e ious s udies, he ocus on he de e minan s o o eign di ec
in es men was mainly cen e ed on ansac ion cos economics, wi h ew conside ing he
ole o unce ain y, mainly due o lack o da a on unce ain y measu emen (Azzimon i,
2019;Nguyen e al.,2018;Honig,2020;Choi e al.,2021).
The e is an acknowledgemen ha among he de e minan s o FDI, sho - e m e ec s
such as unce ain y a ec FDI in lows (Ja de e al.,2023). P e iously, a lack o c oss-coun y
unce ain y measu es has limi ed he empi ical s udies on unce ain y as a de e minan o
FDI o a numbe o coun ies. These challenges ega ding he c oss-coun y measu e o
unce ain y mo i a ed his s udy, as he e a e cu en ly da a imp o emen s in he measu e
o unce ain y (Bloom,2009)A. Dixi (2011) a gued ha FDI a e he mos abundan capi al
lows exposed o economic, poli ical, and ins i u ional unce ain y. Thus, global isk
a e sion by in es o s can esul in ligh o quali y, a ec ing he le el o FDI in a coun y
o a speci ic pe iod. Recen p e ious s udies appea o assume linea i y in he ela ionship
be ween he de e minan s o FDI (Nguyen & Lee,2021;Choi e al.,2021;A om e al.,2020),
sa e o An and Yeh (2021) who a gued o he possibili y o a nonlinea ela ionship, and
mo e so when inancial de elopmen is conside ed as a de e minan o FDI.
Economies 2025,13, 147 5 o 12
Gi en ha he aim o his s udy is o examine he long- and he sho - e m e ec s o
economic policy unce ain y on o eign di ec in es men (ne in lows), we p esen he
ollowing hypo heses:
H1. EPU has no signi ican impac o he ne in lows o o eign di ec in es men .
H2. The media ing e ec s be ween inancial de elopmen and economic policy unce ain y
(FD ×EPU) ha e no signi ican impac on o eign di ec in es men in lows.
3. Me hodology
Da a and Va iables
This sec ion desc ibes he da a and ou lines he empi ical s a egy ega ding he long-
and sho - e m e ec and he causal e ec s o economic policy unce ain y and inancial
de elopmen on o eign di ec in es men . This s udy used panel da a om 2000 o 2023 o
75 eme ging and de eloping ma ke s. The selec ion o he s udy pe iod and he coun ies
included was mainly de e mined by da a a ailabili y.
Due o he non-a ailabili y o da a on he inancial ma ke s in some o he eme ging
and de eloping ma ke s, his s udy uses only banking da a, a he han also including he
da a om he s ock ma ke . Table 1. P esen s he a iables, de ini ion o a iables and he
sou ces o da a.
Table 1. Va iables, de ini ion o a iables, and da a sou ces.
Va iables De ini ion o Va iables Sou ce Expec ed Sign
Fo eign di ec in es men
in lows (FDI)
Fo eign di ec in es men ; ne
in lows (% o GDP)
Wo ld De elopmen
Indica o s (WDI)
Economic policy
unce ain y (EPU)
Risk associa ed wi h unde ined
u u e go e nmen policies and
egula o y amewo ks
h ps://
www.policyunce ain y.com
(accessed on 19 May 2025)
-
Financial de elopmen
(FD)
Domes ic “c edi o he p i a e
sec o by banks (% o GDP)” WDI +/−
EPU*FinDe The in e ac ion be ween EPU
and FinDe
WDI and h ps://
www.policyunce ain y.com
(accessed on 19 May 2025)
+/−
Sou ce: au ho s’ compila ion.
In his s udy, he o eign di ec in es men is hypo hesized o be a unc ion o unce -
ain y, inancial de elopmen , and he in e ac ion e m be ween inancial de elopmen
and unce ain y:
FDI = (EPU, FinDe , EPU∗FinDe ) (1)
whe e FDI is o eign di ec in es men in lows; EPU is he economic policy unce ain y
index, FinDe is he inancial de elopmen ; and (EPU
∗
FinDe ) is he in e ac ion e m
be ween economic policy unce ain y and inancial de elopmen .
This s udy employed he panel au o eg essi e dis ibu ed lags (ARDL) me hodology
as he p e e ed es ima ion echnique. The choice o his me hodology was mainly cen e ed
on i s simplici y and i s abili y o cap u e bo h sho - and long- e m pe iods simul aneously
in analysis. Following Pesa an e al. (1999), he panel ARDL is he p e e ed me hod o
examining he coin eg a ing he ela ionships be ween he a iables as a iables o di e en
o de s and deg ees o in eg a ion can be used in he es ima ion as long as hey do no
ha e an in eg a ion o mo e han 2 ha is I(2). As a p e equisi e o any economic analysis,
Economies 2025,13, 147 6 o 12
s a iona i y es s o each o he a iables we e employed o de e mine he a iables’ o de
o in eg a ion.
As a gued by Pesa an e al. (2001), Na ayan (2004), and Magwede e and Ma oz a
(2024), panel ARDL is app op ia e in small samples, and i also concu en ly examines
he long- and he sho - e ms ela ionships be ween he a iables. Be o e he panel model
is es ima ed, his s udy checked he s a iona i y o he a iables using he uni oo es s
and he esul s a e p esen ed in Appendix A. The empi ical li e a u e ecommends he
Le in e al. (2002), B ei ung and Das (2005), Im e al. (2003), Maddala and Wu (1999), and
Had i (2000) panel uni oo es s. The mean g oup (MG), dynamic ixed-e ec s (DFE)
g oup, and pooled mean g oup (PMG) es ima ions me hods we e compa ed o de e mine
he bes - i ing model o he da a ha accoun s o he e iciency and consis ency o he
es ima o s. The Hausman es was used o selec a obus model o he da a. Gi en he
a iables unde conside a ion in his s udy, he panel ARDL is speci ied as ollows:
∆FDIi =∅i(FDIi, −1−γ1iEPUi, −γ2iFinDe i, −γ3iEPU∗FinDe i, )+
∑q−1
j=0β1i∆EPUi, −j+∑p−1
j=1δij∆FDIi, −j+∑q−1
j=0β2i∆FinDe i, −j+
∑q−1
j=0β3i∆EPU∗FinDe i, −j+µi+εi
(2)
∆EPUi =∅i(EPUi, −1−γ1iFDIi, −γ2iFinDe i, −γ3iEPU∗FinDe i, )+
∑q−1
j=0β1i∆EPUi, −j+∑p−1
j=1δij∆FDIi, −j+∑q−1
j=0β2i∆FinDe i, −j+
∑q−1
j=0β3i∆EPU∗FinDe i, −j+µi+εi
(3)
∆FinDe i =∅i(FinDe i, −1−γ1iFDIi, −γ2iEPUi, −γ3iEPU∗FinDe i, )+
∑q−1
j=0β1i∆FinDE i, −j+∑p−1
j=1δij∆FDIi, −j+∑q−1
j=0β2i∆EPUi, −j+
∑q−1
j=0β3i∆EPU∗FinDe i, −j+µi+εi
(4)
FDIi
ep esen s o eign di ec in es men ne in lows o coun y i o yea ;
EPUi
is he economic policy unce ain y o coun y i o yea ;
FinDe i
is he inancial de el-
opmen o coun y i a ime ;
EPU∗FinDe i
is he in e ac ion be ween economic policy
unce ain y o coun y i a ime pe iod ; whils
µi
and
εi,
deno e he ixed e ec s and he
e o e m, espec i ely.
β1...N
,
δ
, a e he sho - e m coe icien s; he long- e m coe icien s
in he model a e ep esen ed by
γ1i
and
γ2i
; whils
∅i
ep esen s he speed o adjus men
o he long- e m equilib ium. This s udy con olled o ixed e ec s o mi iga e he conce n
ha policy unce ain y is o en co ela ed ac oss coun ies o d i en by a common ac o .
Gi en he models speci ied in Equa ions (2)–(4), he concep ual amewo k o he
s udy is ou lined in Figu e 1.
EPU*FD
Mode a ing e ec s
Economic policy unce ain y FDI in lows
+/−
Financial de eopmen
+/−
Figu e 1. Concep ual amewo k. Sou ce: au ho s’ own design.
Economies 2025,13, 147 7 o 12
The concep ual amewo k depic ed in Figu e 1illus a es he in e play be ween
economic policy unce ain y, inancial de elopmen , and o eign di ec in es men (FDI)
in lows. I heo izes ha inc eases in economic policy unce ain y can de e FDI in lows,
while obus inancial de elopmen may a ac such in es men s. Fu he mo e, he ame-
wo k sugges s ha inancial de elopmen se es as a media ing channel h ough which
economic policy unce ain y impac s FDI in lows.
4. Resul s
The desc ip i e s a is ics, co ela ion analysis, uni oo es s, and he esul s om he
panel ARDL es ima ion a e p esen ed in his s udy.
4.1. Desc ip i e S a is ics
The desc ip i e s a is ics o his s udy a e p esen ed in Table 2.
Table 2. Desc ip i e s a is ics.
Va iable Obs Mean S d. De Min Max
FDI 1800 3.2883 4.0354 −37.1727 43.9121
EPU 1800 0.0646 0.0512 0 0.4180
FD 1798 32.4364 28.4516 0.0015 263.5903
FD_EPU 1799 2.0871 2.6866 0 25.1127
Sou ce: au ho s’ own compu a ions.
Table 2shows he desc ip i e s a is ics o he s udy. The maximum o FDI as a
pe cen age o he espec i e coun ies’ GDP is 43.91%, indica ing no able FDI in lows ac oss
he coun ies wi h an a e age o 3.288. The o eign di ec in es men o he coun ies
is closely clus e ed a ound he a e age o he da ase , as he s anda d de ia ion o FDI
is 4.0354. Fo he EPU, he maximum is 0.4180, wi h a minimum o 0 and a s anda d
de ia ion o 0.0512. The a e age o he EPU is 0.0646. Financial de elopmen has an
a e age o 32.4364, wi h a much la ge s anda d de ia ion o 28.4516, sugges ing a high
deg ee o a iabili y in inancial de elopmen ac oss he coun ies. The alues ange om
a minimum o 0.0015 o a maximum o 263.5903, sugges ing ha inancial de elopmen
le els di e widely ac oss he obse a ions. The in e ac ion be ween inancial de elopmen
and economic policy unce ain y (FD_EPU) has a mean o 2.0871 and a s anda d de ia ion
o 2.6866, displaying a a ional deg ee o a ia ion. The alues ange om 0 o 25.1127,
indica ing ha he in luence o EPU on inancial de elopmen a ies signi ican ly.
4.2. Empi ical Resul s
The empi ical esul s on he nexus be weed FDI, EPU, FD and he in e ac ion be ween
FD and EPU a e p esen ed in Table 3.
Table 3. Panel ARDL and ECT esul s.
PMG PMG PMG PMG
Va iables D.FDI D.EPU D.FD_EPU D.FD
Long- e m
L.EPU 3.970 * 0.0371 *** 12.98 **
(1.736) (0.000479) (4.435)
FD_EPU −0.0911 * −0.000900 329.5 ***
(0.0411) (0.00248) (80.72)
Economies 2025,13, 147 8 o 12
Table 3. Con .
PMG PMG PMG PMG
Va iables D.FDI D.EPU D.FD_EPU D.FD
FD 0.00111 0.000206 −0.00172 ***
(0.00341) (0.000170) (0.0000479)
FDI −0.000482 0.000636 *** −0.102
(0.000389) (0.000128) (0.0623)
ECT −0.533 *** −0.560 *** −0.239 *** 0.227 ***
(0.0339) (0.0253) (0.860) (0.0260)
Sho - e m
D.EPU −1.497 −4.512 *** 8.938
(1.472) (1.270) (9.270)
D.FD_EPU 62.06 −0.471 74.57 ***
(62.02) (0.475) (8.445)
D.FD −15.68 −0.0834 0.0570 ***
(15.68) (0.0837) (0.00587)
D.FDI −0.000718 0.0241 −0.251
(0.000886) (0.0266) (0.294)
_cons 1.539 *** −0.0323 *** 0.830 *** −6.013 ***
(0.142) (0.00211) (0.0654) (1.255)
N1647 1647 1647 1647
The obus s anda d e o s a e in pa en hesis. * p< 0.05, ** p< 0.01, *** p< 0.001. Sou ce: au ho s’ own
compu a ions using S a a 15.1.
5. Discussion
The esul s o he long- e m and he sho - e m ela ionship be ween economic policy
unce ain y, o eign di ec in es men , and inancial de elopmen a e p esen ed in Table 3.
The esul s also p esen indings on he e ec o he in e ac ion be ween economic policy
unce ain y and inancial de elopmen on o eign di ec in es men .
This s udy ound a posi i e long- e m ela ionship be ween economic policy un-
ce ain y and o eign di ec in es men . The null hypo hesis o no signi ican e ec o
economic policy unce ain y o ne in lows in FDI is ejec ed a a 5% signi icance le el. The
a p io i expec a ions we e a nega i e ela ionship be ween he a iables, as highe eco-
nomic policy unce ain y is expec ed o de e o eign di ec in es men . This can possibly
e lec a “ isk- aking” o specula i e in es men beha io in unce ain en i onmen s. The
eal op ions heo y a gues o he i e e sibili y o an in es men decision, and possibly,
in mos cases, he i ms ha e al eady in es ed. Thus, he e is a possibili y o inc eased
in es men s i espec i e o highe unce ain y. Risk-neu al in es o s may inc ease hei
in es men s du ing pe iods o highe unce ain y (Miao e al.,2021). Economic policy
unce ain y posi i ely a ec s FDI and FD_EPU in he long e m bu can be des abilizing in
he sho e m. The heo y o s a egic in es men ( i s -mo e ad an age) can explain he
posi i e ela ionship be ween o eign di ec in es men and economic policy unce ain y.
In unce ain economic en i onmen s, some i ms migh make s a egic in es men s o es-
ablish hei p esence in a new ma ke be o e hei compe i o s (S uckell e al.,2022). This
“ i s -mo e ad an age” can gi e o eign i ms a oo hold in he ma ke when local i ms
a e hesi an o cons ained by unce ain y. By en e ing he ma ke du ing unce ain imes,
o eign in es o s may secu e a dominan ma ke posi ion once he unce ain y subsides.
The posi i e ela ionship be ween unce ain y and FDI in hese se ings could s em om
he pe cep ion ha unce ain ma ke s p o ide high po en ial e u n and oppo uni ies,
especially in indus ies whe e ea ly en y o monopolis ic ad an ages can be gained. In
