Abstract
Contagion has been one of the most widely studied and challenging problems in recent economic research. This paper aims at capturing the main impact of contagion risk of the U.S. on foreign direct investment inflows in 18 emerging countries. To quantify the degree of contagion, the time-varying tail dependence copula is employed. Then, the Granger causality test and time series regression analysis are used to investigate the temporal and contemporaneous effects of contagion risk on investment inflows, respectively. Overall, the results confirm the time-varying contagion effects of the U.S. economy on 18 emerging economies. The size of contagion effects gradually increases for all countries, except Thailand, the Philippines, Argentina, and Chile. Furthermore, the results of the Granger causality test and regression reveal that temporal and contemporaneous effects of contagion risk on investment inflows exist in 8 out of 18 countries.
Highlights
Mathematics 2021, 9, 2540. https://Inward investment can be viewed as a foreign direct investment (FDI), which is a vital source of economic growth in many emerging countries [1]
This study proposes using the static and dynamic copula models to quantify the degree of the U.S contagion effect on emerging countries
We use bivariate copula to investigate the economic contagion between the U.S economy and emerging countries because the model allows us to measure the degree of contagion through tail dependence
Summary
Inward investment can be viewed as a foreign direct investment (FDI), which is a vital source of economic growth in many emerging countries [1]. There are series of questions that need to be answered to help policymakers in formulating better economic policies. These questions include: How does crisis originating in a country affect other countries? This paper highlights the impact of one of the more recent economic events, the economic crisis’s contagion, on the foreign direct investment (FDI) inflows in emerging countries, which are the main trading partners of the U.S Dornean, Işan, and Oanea [6] We want to note that the contagion effect refers to the extreme correlation coefficients among different economies, and it mainly occurs when the value of correlation coefficients increases during extreme events such as economic crises [3,4,5].
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