The Impact Of Economic Policy Uncertainty On Firm Investment At The International Level
Abstract
This paper studies how economic policy uncertainty (EPU) affects firm
investment at the international level. Employing the economic policy uncertainty index
created by Baker, Bloom, and Davis (2016). Over the period 2004–2018, I find that
economic policy uncertainty appears to have a negative interaction with firm investment,
indicating that firms' investment decisions are reduced during periods of elevated EPU. In
addition, organizations with less financial constraints are more susceptible to the effect of
EPU on investment. Furthermore, the EPU-investment nexus is more pronounced for
small firms than for large firms. Combining together, my findings extend the research on
how EPU affects investment at the international level and analyze this relationship deeper
via two channels (financial constraints and firm size).