Download or read book Policy Uncertainty, Irreversibility, and Cross-Border Flows of Capital written by Federal Reserve Federal Reserve Board and published by CreateSpace. This book was released on 2014-11-19 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the effects of government policy uncertainty on cross-border capital flows. FDI flows from US companies to foreign affiliates drop significantly during the period just before an election. The election effect for FDI is larger than election cycles in domestic investment. The electoral patterns in FDI flows are more pronounced in countries with higher propensities for policy reversals and when election outcomes are more uncertain. Our identification strategy compares variation in different types of capital flows into the same country around the timing of national elections. The electoral cycles are present in relatively irreversible FDI flows but not in foreign portfolio investment flows, suggesting a likely causal link from political uncertainty to and capital flows.