Fiscal Deficit Effects on Foreign Investment in Latin American Fintech Markets: A Multi-country Analysis of Investment Response Patterns (2010

Abstract

This study analyzed how fiscal deficits influenced foreign investment flows in the fintech sector across 10 Latin American countries from 2010 to 2023. The research employed panel vector autoregression (PVAR), Granger causality tests, and impulse response functions (IRFs) to measure both immediate and lagged effects of fiscal policy changes on investment decisions. The findings indicated that a 1% increase in fiscal deficits led to a cumulative 1.178% decrease in fintech investments over eight quarters, with peak effects occurring in quarters two and three. Digital infrastructure quality and regulatory frameworks acted as moderating factors, with coefficients of 0.384 and 0.292, respectively. The analysis confirmed unidirectional causality from fiscal deficits to investment flows, indicating that fintech investment levels did not influence fiscal outcomes. These results suggest that countries could partially offset negative fiscal effects through strategic investments in digital capabilities and regulatory improvements. The temporal patterns pointed to measured evaluation processes among international investors, who balanced fiscal challenges against market opportunities when making investment decisions. The findings added quantitative precision to the understanding of fiscal-investment relationships in Latin American digital financial services, while offering practical implications for policy development and investment strategy.

JEL ClassificationE62, F21, G23, O54

Keywords

Fiscal policy financial technology foreign direct investment digital infrastructure Latin American economies

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Fiscal Deficit Effects on Foreign Investment in Latin American Fintech Markets: A Multi-country Analysis of Investment Response Patterns (2010–2023)

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