Effects of Sustainable Monetary and Fiscal Policy on FDI Inflows to EMDE Countries

Bruno Tiberto and Helder de Mendonça

No 575, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: Emerging Market and Developing Economies (EMDE) countries are the leading destinations of Foreign Direct Investment (FDI). We investigate whether sustainable monetary and fiscal policy through indicators that reflect the expectations concerning the central bank’s commitment to a target and the sustainability of government finance affects FDI inflows. Based on a large sample of 75 EMDE countries from 1990 to 2019, we provide empirical evidence through panel data analysis that sustainable macroeconomic policies are an essential driver of FDI inflows. The findings show EMDE countries should increase the central bank credibility, decrease the fiscal imbalance, and adopt inflation targeting to enhance FDI inflows.

Date: 2023-02
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg, nep-int and nep-mon
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