Nonlinear Effects of China's Economic Policy Uncertainty on FDI Inflows in Southeast Asian Countries

The return of Donald Trump to the US presidency has reignited concerns over the US-China trade war that previously took place. This study aims to provide further insights into the impact of China's economic uncertainty on foreign direct investment (FDI) inflows in Southeast Asian countries. China's economic uncertainty is assessed through various dimensions, including the US-China Tension Index, the Economic Policy Uncertainty Index for China, and the Trade Policy Uncertainty Index for China. The study sample comprises 11 Southeast Asian countries over the period 1993-2023. Reliable panel data estimation methods, including fixed effects models (FEMs), Driscoll-Kraay standard errors, and robustness checks using the two-step system GMM method, are employed. The findings reveal a consistent inverted U-shaped nonlinear impact of China's economic policy uncertainty on FDI inflows in Southeast Asian countries. This research makes a significant contribution by enriching the understanding of how multinational corporations respond to economic policy uncertainties and trade disputes.