The Influence of Geopolitical Risk on International Direct Investment and Its Countermeasures

Abstract

Recent years have seen frequent geopolitical conflicts and the world economy has fallen into a recession. In order to explore how wars, terrorist attacks and international tensions affect foreign direct investment (FDI), this paper uses the fixed-effect model to investigate the impact of geopolitical risks on FDI flows in 41 countries during 2003–2020 from the perspective of market seeking, natural resource seeking and strategic resource seeking. The results show that, on the whole, geopolitical risks can significantly inhibit the inflow of foreign direct investment and hinder the development of domestic economy. The market size, natural resources and science and technology of the host country are important factors to attract foreign investment. Trade dependence has a moderating effect on the negative impact of geopolitical risks. Countries that depend on international trade may eliminate geopolitical frictions through economic cooperation. The impact of geopolitical risk is heterogeneous in countries with different levels of economic development. The impact of geopolitical risk on foreign direct investment in developed economies is not significant.

The Effects of Geopolitical Risk on Foreign Direct Investment in a Transition Economy: Evidence from Vietnam

“…In other words, increasing GPR deters FDI inflows. This evidence is consistent with the previous empirical findings of Ramcharran (1999), DesBordes (2010), Hayakawa et al (2013), Weiling and Martek (2021), Nguyen et al (2022), Thakkar and Ayub (2022), Bussy andZheng (2023), andYu andWang (2023). The implication of this finding is that in the context of transition economies, GPR could result in potential economic costs for MNCs.…”

Reflections of Geopolitical Risk on Foreign Direct Investments: The Case of Türkiye

“…In terms of the results of the studies, there was a negative correlation between FDI and geopolitical risk in general, while De Angelo et al ( 2010), Rauf et al (2016), Zeng and Li (2019), Asaad et al (2020), Afşar et al (2021), Ayten (2021), Caldara and Iacoviello (2022), Carpenter (2022), Özşahin et al (2022) are studies conducted on a single country. Artciles with a large number of cross-section units, such as many countries or companies, are reported by Chanegriha et al (2017), Dissanayakea et al (2018, Arslan (2019), Dedeoğlu et al (2019), Kim et al (2019), Wang et al (2019), Fania et al (2020, Le and Tran (2021), Luo (2021), Ceyhan and Gulcan (2022), Dastan et al (2022), Li et al (2022), Lu andLiu (2022), Nhuyen et al (2022), Thakkar and Ayub (2022), Busy and Zheng (2023), Feng et al (2023), Yu and Wang (2023). The selected literature summary from these studies is given below:…”

“…Feng et al (2023) determined that GMM and geopolitical risks significantly reduced FDI inflows in 45 countries during the period 2005-2019. Yu and Wang (2023) examined the impacts of geopolitical risks on FDI flows in 41 countries between 2003 and 2020, considering market, strategic, and natural resources with the Fixed Effects Model. The test results showed that geopolitical risk could significantly impede FDI flows and this impact would differ according to development levels.…”

The Nexus between Climate Change and Geopolitical Risk Index in Saudi Arabia Based on the Fourier-Domain Transfer Entropy Spectrum Method

“…A large body of literature examines the consequences of geopolitical risk in terms of macroeconomic factors such as economic growth [15,16], international direct investment [17], joblessness rates [18], inflation [19,20], and financial markets [21,22]. A good number of modern researchers have called attention to the impact of the geopolitical risk index on the cost of energy and metals [23][24][25][26].…”