Simulating the Impact of FDI Shocks on Macroeconomic Stability Using Agent-Based Modeling

Abstract

— Foreign Direct Investment (FDI) is a key driver of macroeconomic stability, particularly in emerging economies. This study utilizes Agent-Based Modeling (ABM) to examine the dynamic effects of FDI shocks on key macroeconomic indicators, including GDP, exchange rate, inflation, trade openness, and employment. Three simulation scenarios are conducted: (1) a baseline scenario with stable FDI inflows, (2) a positive shock with a 5% increase in FDI, and (3) a negative shock with a 5% decrease in FDI. The findings reveal that positive FDI shocks stimulate GDP growth and employment, though they may also contribute to inflationary pressures. In contrast, negative FDI shocks lead to economic contraction, exchange rate depreciation, and declining employment opportunities. The results emphasize the need for effective policy measures to stabilize FDI inflows, minimize volatility, and sustain long-term economic growth. By leveraging simulation-based economic modeling, this study provides valuable insights for policymakers on mitigating the risks associated with FDI fluctuations and enhancing economic resilience.