Business Sentiment and FDI Dynamics in Brazil: An Econometric Assessment of Investor Confidence, 2000–2025

Abstract

Research on China has recently argued that locally sourced business sentiment is a better leading indicator of foreign direct investment (FDI) than global confidence indices. This paper asks whether that result travels to Brazil, Latin America’s largest FDI recipient. We replicate and extend the design of Finley et al. (2025) using the components of the Industrial Entrepreneur Confidence Index (ICEI) of the National Confederation of Industry (CNI) — current conditions (Business Performance), expectations (Business Outlook) and the composite index — together with Brazil’s rank in the Kearney FDI Confidence Index and macroeconomic fundamentals for 2000–2025. Trend, correlation, Newey–West regression, ARDL bounds-testing and Granger-causality analyses are applied. Business Outlook declines significantly over the period (−0.42 points per year, p = 0.005), and Brazil falls from 3rd place (2012–2013) to outside the Kearney top 25 (2019, 2023). Yet FDI does not follow: FDI as a share of GDP is flat and FDI in US dollars grows by about 6.1% per year. Sentiment is uncorrelated with FDI intensity, the bounds test rejects a long-run sentiment–FDI relationship, and sentiment does not Granger-cause FDI, whereas lagged FDI does help predict sentiment. Real labour-cost growth is the only determinant that is significant across all specifications. The evidence is consistent with counter-cyclical, “fire-sale” FDI during Brazil’s 2015–2016 recession, when confidence collapsed and the real depreciated while FDI intensity peaked. We conclude that domestic sentiment is not a universal leading indicator of FDI: its predictive value depends on the motive and timing of inward investment, and Brazilian policymakers should monitor costs and asset valuations alongside confidence.