Effect of Foreign Direct Investment on Stock Market Performance in USA

Abstract

Stock markets play a critical role in the economy, more so enhancing the economic growth and increasing prosperity of the citizens. The performance of the stock market is influenced by many factors, with foreign direct investment being one of them. Over between 2015 and 2020, FDI (foreign direct investments) fell consistently in the USA, but this was not accompanied by a decline in the stock market performance. In the earlier years, however, the two variables seem to commove. Thus, there is no clear relationship between these two variables. This is the relationship this study sought to find out. The main finding of the paper is that the coefficients of FDI are positive and statistically significant. An increase of FDI by one percent leads to a decrease in stock market index by 0.06 percent.