Abstract
This paper investigates the effects of economic policy uncertainty (EPU) on outward foreign direct investments (FDI) in 21 countries. We construct the relative EPUs to take into account multiple countries' uncertainty together. We develop a theoretical model for the relationship between uncertainty and outward FDI and estimate the dynamic effects of the relative EPU on FDI outflows using the dynamic panel and the panel VAR models. Our empirical findings show that a relatively high EPU in the home country significantly contributes to increased outward FDI. When the relative EPU shock occurs, FDI outflow peaks in the fifth quarter and gradually decreases over the next quarters.
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