Effects on the economy of Brazil of a withdrawal of foreign direct investment

Abstract: Foreign direct investment flows are an important theme in the analysis of global capital flows. The study aims to analyse the effect a withdrawal of FDI has on the economy of Brazil. This is based on the sharp decrease FDI inflows have seen during 2020. The study is based on the theory of David Ricardo and microeconomic and macroeconomic FDI theories. A vector autoregressive model (VAR) was applied using the Toda andYamamoto methodology. The findings show that FDI inflows are positively affected by an increase in GDP and negatively affected by an increase in real average monthly wages. Furthermore, no effect of FDI on any of the considered variables could be determined. This can be attributed to the complexity of the Brazilian economy during the considered period of March 2012 – October 2021, as well as a possible omitted variable bias. This thesis is intended to serve as an avenue for further research on the effect FDI withdrawals have on the Brazilian economy.