BRIC in flux: Understanding the influence of energy policy uncertainty on foreign direct investment flows

Abstract

AbstractThis research investigates the intricate relationship between energy policy uncertainty (EGU) and foreign direct investment (FDI) within the BRIC economies over a comprehensive 27‐year period, spanning from 1996 to 2022. Employing advanced econometric techniques such as FMOLS and DOLS for regression analysis, the study unravels the nuanced impacts of EGU on both FDI inflows (IFD) and outflows (OFD). Drawing upon a comprehensive data set, the analysis reveals a significant negative correlation between EGU and IFD, indicating that heightened energy policy uncertainties deter foreign capital from entering BRICS nations. Contrarily, the study unveils a paradoxical positive relationship between EGU and OFD, suggesting that energy policy uncertainties stimulate the outflow of FDI, reflecting the adaptive strategies of multinational corporations navigating uncertainties. The study further explores the role of government effectiveness, labour force and financial sector development, shedding light on their positive influences on IFD and negative impacts on OFD. These findings underscore the importance of effective governance, a skilled labour force, and financial sector development in attracting and retaining foreign investments. This research contributes to the literature on energy policy, governance and FDI, offering policymakers and businesses nuanced insights into crafting strategies that enhance the attractiveness of BRIC nations for foreign investments. The study's findings have implications for shaping stable energy policies, improving governance effectiveness and fostering conditions conducive to sustained economic growth and development.