I want to see the impact of a certain economy's govt policy on FDI inflows or to attract FDI inflows. I am a bit confused about variables that can be used as a proxy of government policy.
Uncertainty, Expectation, and speculation can be used as proxies for government policy.
State policies and activities are differentiated according to budget-intensive and budget-extensive activities. The former include all forms of public expenditure and revenue (in particular taxes) that are contained in state budgets and can be determined quantitatively in the form of state quotas or tax quotas (each in relation to GNP). However, state activities are also expressed in activities that express themselves through laws and regulations that do not directly affect the budget. These types of qualitative state activities (budget-extensive) can now be determined using approximations, of which the number of laws passed over time and/or the development of the number of employees in the public sector are used in the literature, for example. See e.g. the well-known textbooks on public finance.
https://www.researchgate.net/publication/4785080_Size_of_the_Public_Sector_Economic_Growth_and_the_Informal_Economy_Development_Trends_in_the_Federal_Republic_of_Germany
https://www.researchgate.net/publication/273900209_Finanzwissenschaft_I_Public_Economics_I_Grundlegung_-_Haushalt_-_Aufgaben_und_Ausgaben_-_Allgemeine_Steuerlehre
https://www.researchgate.net/publication/274363403_Taxes_Tax_Systems_and_Economic_Growth
One proxy is to see the reports of reputed international agencies on the ease of FDI flows into the country. Other is the speed at which transactions happen and the third is the quantum of flows both inflows and outflows and their movement over time.
Government policies are dummy variables that take on one (1) if the phenomenon exists or zero (0) otherwise. On the other hand, independent variables are variables that vary over time. That is how uncertainty, expectation, and speculation come into play as proxies of government policy.
Most researchers use government policy or regulation as dummy variables in addition to the choice of their independent variables and not as an independent variable. You can verify this point. I hope this helps.
You need to take into account interest rates, corporate tax rate, exchange rate and capex by the government as the main quantitative variables..
Financial and fiscal instruments to attract FDI are the most direct, but public policies must be offered in the medium and long term to improve infrastructure and human capital. Businesses look at the latest tax breaks.
I think GDP Can bé used as a proxy in thé policy of Government
