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Business Sentiment and FDI Dynamics in Brazil: An Econometric Assessment of Investor Confidence, 2000–2025 (Asia Pacific Economic and Management Review)

Research paperAsia Pacific Economic and Management ReviewNovember 202614 pages21 min readHamid FayouOriginal source
Key number
6.1%
Annual growth rate of FDI in US dollars p.1
What changed
-0.42 points per year
Annual trend in Business Outlook score p.1
Key number
$100 billion
Peak annual net FDI inflow p.1

Summary

  • Brazilian Business Outlook declined significantly between 2000 and 2025 at −0.42 points per year (p = 0.005).p.1
  • Net FDI inflows in Brazil expanded from about $10 billion in 2003 to a historical peak above $100 billion in 2011.p.1
  • Brazil fell from ranking 3rd place in 2012–2013 to outside the Kearney top 25 in 2019 and 2023.p.1
  • Despite worsening domestic business confidence, FDI in US dollars grew by about 6.1% per year over the 2000–2025 period.p.1
  • In 2016, FDI intensity peaked at 4.14% of GDP while the BRL/USD exchange rate rose by almost 50% between 2014 and 2016.p.7
  • A one-standard-deviation increase in real minimum-wage growth reduces FDI intensity by 0.40 percentage points of GDP (p = 0.018).p.8
  • The ARDL bounds test yielded an F-statistic of 2.50 for Business Outlook, failing to establish a cointegrating long-run relationship with FDI at the 5% level.p.10

Key insights

  1. Locally sourced business sentiment does not serve as a universal leading indicator for foreign direct investment inflows in Brazil.p.1
  2. Brazilian business expectations registered a statistically significant annual decline of −0.417 points per year between 2000 and 2025.p.5
  3. Multinational executive sentiment toward Brazil dropped sharply as the country fell from 3rd place in the Kearney FDI Confidence Index in 2012–2013 to outside the top 25 in 2019 and 2023.p.2
  4. Granger-causality testing indicates that domestic sentiment does not predict future FDI, whereas lagged FDI helps predict lower business confidence.p.10
  5. Real labour-cost growth is the single FDI determinant that remains statistically significant across all econometric model specifications.p.1
  6. Foreign direct investment dynamics in Brazil exhibit counter-cyclical fire-sale characteristics where currency depreciations attract foreign buyers during local economic contractions.p.2
  7. Bounds testing for cointegration confirms no long-run relationship between business sentiment indices and realised FDI in Brazil.p.10

Topics and entities

GlobalPrivate marketsStartup ecosystemsVenture capitalBanco Central do BrasilFordKearneyNational Confederation of IndustryWorld Bank

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