engleski

Do stringent environmental and business regulations, and uncertainty matter for foreign direct investment inflows? Evidence from G7 and BRICS economies

This paper empirically evaluates the impact of environment strin-gency policy, business regulations, policy and economic uncer-tainty, and real GDP per capita on foreign direct investment (FDI)inflows by employing the autoregressive distributed lag approachand using data from 2000 to 2015. Specifically, we focus on twogroups of countries with different economic development, theGroup of Seven (G7) and the BRICS countries, and the compositeindices of business and environmental regulations and policy-induced uncertainty, along with real gross domestic capital (GDP)per capita, were selected to reflect the multidimensionality of thesettings in the selected countries. Our results indicate that onlythe effect of real GDP per capita turned out to be homogenousand statistically significant across different income groups andtime horizons. Findings also show that more friendly business reg-ulations significantly encourage FDI inflows in the long run, butthere is a bottom line. When regulations are already at a lowlevel, as is the case with G7 countries, further liberalization wouldadversely affect FDI inflows. Furthermore, more stringent environ-mental regulations have a marginally adverse effect on FDIinflows only in the long run. At the same time, they weakly sup-port the pollution haven hypothesis. The impact of policy-induceduncertainty on investment is adverse but largely nonsignificant inthe short run. It appears that cross-border investments follow apattern of the safe-haven effect to avoid uncertainty in thelong run.

Environmental stringencypolicies ; businessregulations ; policy-induceduncertainty ; real GDP percapita ; cross-borderinvestment ; pollution havenhypothesis ; safe-haven effect

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