Economic Policy Uncertainty And Investment: A Comparative Analysis Of India And Brazil

Abstract

This article investigates the effects of economic policy uncertainty (EPU) on investment in two major emerging economies, Brazil and India, from 2008 to 2018. We utilize the news-based index in Baker et al. (2016) to measure EPU. We show that as EPU increases, Indian firms increase, and Brazilian firms reduce their investment. An examination of cross-sectional heterogeneity shows that smaller, more vulnerable firms are most affected by the adverse outcomes of uncertainty in Brazil. However, larger and more leveraged firms are those that take advantage of the investment opportunities in India in times of increased EPU. Our results are robust to endogeneity and alternative EPU measures, regression models, and investment measures.