THE EFFECTS OF POLITICAL RISK AND ECONOMIC POLICY UNCERTAINTY ON FOREIGN DIRECT INVESTMENTS: A PANEL COINTEGRATION ANALYSIS FOR SELECTED EU COUNTRIES
THE EFFECTS OF POLITICAL RISK AND ECONOMIC POLICY UNCERTAINTY ON FOREIGN DIRECT INVESTMENTS: A PANEL COINTEGRATION ANALYSIS FOR SELECTED EU COUNTRIES
Yazar: Azazi, Dr. Hasan; Savrul, Dr.öğrt.üyesi Mesut
Dergi: Girişimcilik ve Kalkınma Dergisi, Vol. 14 No. 1, 2019
Anahtar kelimeler: Political risk,economic policy uncertainty,foreign direct investment inflows

Political risk andeconomic policy uncertainty have an impact on many macroeconomic variables inthe economy. One of the most crucial of these variables are foreign directinvestment. Foreign investors refrain from investing in the economies of highpolicy uncertainty and direct their investment to the economies where there ispolitical stability and no uncertainty in the economy. This study attempted aneconometric model to illustrate the long-run relationships among politicalrisk, economic policy uncertainty and foreign direct investment inflows of fiveEU countries during the period 2001-2014. Westerlund and Edgerton (2007)'spanel LM bootstrap panel cointegration test is applied to discover empirical support for the presence of the cointegrationrelationship between the variables. Finally, the cointegration coefficients are estimated by using thePesaran (2006)'s CCE estimator. The empirical findings show positivecoefficients for political stability in Germany, France, England and Spainwhile statistically significant and negative coefficients for economic policyuncertainty in France and Spain. In addition, the variable of economic freedomhas statistically significant and positive effect on foreign direct investmentsfor only England and the openness of trade variable has statisticallysignificant and positive effect on it for Spain and Italy.

Political risk andeconomic policy uncertainty have an impact on many macroeconomic variables inthe economy. One of the most crucial of these variables are foreign directinvestment. Foreign investors refrain from investing in the economies of highpolicy uncertainty and direct their investment to the economies where there ispolitical stability and no uncertainty in the economy. This study attempted aneconometric model to illustrate the long-run relationships among politicalrisk, economic policy uncertainty and foreign direct investment inflows of fiveEU countries during the period 2001-2014. Westerlund and Edgerton (2007)'spanel LM bootstrap panel cointegration test is applied to discover empirical support for the presence of the cointegrationrelationship between the variables. Finally, the cointegration coefficients are estimated by using thePesaran (2006)'s CCE estimator. The empirical findings show positivecoefficients for political stability in Germany, France, England and Spainwhile statistically significant and negative coefficients for economic policyuncertainty in France and Spain. In addition, the variable of economic freedomhas statistically significant and positive effect on foreign direct investmentsfor only England and the openness of trade variable has statisticallysignificant and positive effect on it for Spain and Italy.