SPILLOVER EFFECTS OF FOREIGN POLICY UNCERTAINTY AND THEIR IMPACT ON FDI INFLOWS IN ASIA–PACIFIC: A PANEL QUANTILE APPROACH
DOI:
https://doi.org/10.2478/eoik-2025-0097Keywords:
Economic policy uncertainty, Spillover effect, Asia– Pacific, Foreign direct investment, quantile regressionAbstract
This study investigates the nonlinear impact of foreign economic poli-
cy uncertainty (EPU) on foreign direct investment (FDI) inflows across
21 Asia-Pacific economies from 1993 to 2023. The research first em-
ploys the Diebold-Yilmaz spillover index to quantify the cross-border
transmission of EPU, identifying Japan, Singapore, and Australia as
the region’s primary uncertainty transmitters. Subsequently, a panel
quantile regression model is applied to analyse how economies with
varying levels of FDI integration respond to these external shocks. The
findings reveal a significant nonlinear relationship: in economies with
lower FDI inflows (0.1 quantile), an increase in foreign EPU is associ-
ated with a 0.505% decline in FDI, reflecting heightened risk aversion.
Conversely, in economies with high FDI integration (0.9 quantile),
the same shock corresponds to a 0.523% increase in inflows, indicat-
ing a “flight-to-safety” effect. These results suggest a one-size-fits-all
policy approach is inadequate; low-FDI economies should prioritize
institutional resilience to mitigate capital flight, while high-FDI econ-
omies must focus on financial stability to maintain their safe-haven
status. Future research could build upon these findings by exploring
sectoral-level impacts, a nuance not captured by this study’s aggregate
data approach.
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