Foreign direct investment in an unsettling economic and socio-political environment

  • Sulaiman Aldhawyan

Student thesis: Doctoral Thesis


This thesis consists of three empirical chapters around the central theme on the role of economic policy shocks and socio-political disruption play in informing foreign direct investment (FDI). The first empirical chapter examines whether economic policy uncertainty (EPU) explains variations in cross-border merger and acquisition (CBA) activities from 20 countries over the period 1997-2017. The results suggest that a higher degree of EPU at home retards the number and volume of inbound CBA deals. However, the inverse relationship between EPU and inward CBA is moderated by the quality of the host country's institutions, business environment, and political risk.;The bilateral acquirer-target country-pair investigation reveals that, while higher EPU in the target's nation deters inbound CBAs, higher EPU in the acquirer nation is positively associated with a higher number and volume of outbound CBA deals. Finally, the market seems to revise the expected synergy from the CBAs negatively (positively) in the form of lower (higher) cumulative returns when the target's (acquirer's) domicile faces higher EPU.;The second empirical chapter investigates how populist government policies, induced by immigration-related fear sentiments (IFS), affect inbound CBAs in 4 countries over the period 1995-2017. Consistent with the economic conjecture that populism creates deadweight costs for potential international investors, the findings strongly indicate that the number of inbound CBAs significantly declines following the escalation of IFS. Using two discrete exogenous shocks that escalated anti-immigration populism, the results show a significant drop in inbound CBAs, reduced likelihood of receiving acquisition bids, and lengthier deal completion period for the target firms located in major developed economies.;The inverse nexus between IFS and CBAs seems to be more pronounced in economies with anti-immigration populist (AIP) governments and in labour intensive industries.;Finally, the third empirical chapter quantifies the effect of geopolitical risk (GPR) on FDI inflows. In terms of empirical identification, I exploit the economic shock of the Arab Spring and use it as a source of exogenous variation in GPR over the period 2005-2015 for 175 countries. Also, I employ a time-varying media-based measure of GPR in 18 countries over the period 1988-2016. The results support the negative link between GPR and FDI in both identifications.;The findings of all three empirical chapters, taken as a whole, supports the notion that uncertainty surrounding government policy, migration fears, and geopolitical tensions have a significant and detrimental effect on FDI flows. I believe the finding of this thesis carry important implications for policy makers as indecision from policy makers, with respect to domestic and global political issues, may negatively impact an economy's ability to efficiently allocate capital.
Date of Award31 Jul 2020
Original languageEnglish
Awarding Institution
  • University Of Strathclyde
SupervisorChandra Thapa (Supervisor) & Krishna Paudyal (Supervisor)

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