The present research aims to analyze the impact that economic policy uncertainty has on foreign direct investments outflows from the United States (USDIA) between 1994Q1 and 2016Q4. For this purpose, the recently developed EPU Index is used as a measure of economic policy uncertainty of both the U.S. and of a panel of 19 target countries of USDIA. Granger Causality tests are employed on the basis of a VAR and GMM models, which facilitate the analysis of lagged effects of both the home and host country indices, while addressing the problem of endogeneity of the variables. Moreover, an impulse response function is used to confirm our hypothesis of a lagged response of USDIA to shocks in the index. Results of the study indicate the presence of a strong causal link between the U.S. outflows FDI and the level of economic policy uncertainty. USDIA are found to peak three quarters after a shock in the domestic EPU, and to decrease two quarters after a shock in the host country EPU. Our findings indicate the relevance of economic policy uncertainty in the investment decisions of MNEs in the United States, and show how economic policy uncertainty could represent a tool for policy makers to forecast and monitor changes in foreign direct flows.

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