Foreign Direct Investment and External Vulnerability: An Analysis of the Brazilian Economy With VEC Methodology

Research on foreign direct investment became one of the main areas of study in the Brazilian economy after the economic stabilization of 1994, a period in which the country began to register an unprecedented flow of investments in its history. In summary, the main research seeks to analyze the importance of FDI for the country’s long-term development or to measure its attractiveness factors, and there is still a small literature that focuses on analyzing how external vulnerability affects the flow of foreign capital. In this sense, this research sought to measure how the main external vulnerability indicators affected the FDI flow in the Brazilian economy during the years 1995-2020 using the methodology of Error Correction Vectors (VEC). The explanatory variables selected were the Gross Domestic Product (GDP), Current Transactions, and International Reserves, the explained variable corresponds to the inflow of Foreign Direct Investments. The data suggest that the external vulnerability indicators and their lags are the main factors of attraction of foreign capital.