CAPITAL FLOW AMID THE COVID-19 PANDEMIC: CROSS-COUNTRY CONTAGION EFFECT AMONG ASEAN5 AND PROJECTION OF THE IMPACTS FOR THE INDONESIAN ECONOMY

Ferry Syarifuddinn () and Maman Setiawan ()
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Ferry Syarifuddinn: Bank Indonesia

No WP/08/2021, Working Papers from Bank Indonesia

Abstract: Worldwide investment flow has been greatly disturbed by the pandemic, especially for emerging economies. this paper aims to: (1) Investigate the contagion effect of foreign portfolio investment, foreign direct investment, financial derivatives investment, and other investment flow among ASEAN5 countries in the context of pre and during the COVID-19 Pandemic, and (2) study the effects of the Pandemic on sectoral foreign direct investment and GDP of Indonesia. We use spatial econometrics, local projection, and panel vector autoregressive methods to achieve the objectives of this study. The data used are quarterly country-level data for ASEAN5 member countries from 2015Q1 to 2020Q4 and sectoral and regional-level data of Indonesia from 2000Q1 to 2021Q2. Out spatial model estimation results show that Equity FPI tends to be the most contagious type of investment both during the Pandemic period and in the normal period. The derivative investment follows in second with debt FPI in third. FDI tends to only be contagious during the Pandemic period while another investment is not found to have a contagiousness effect at all both in normal times and in the Pandemic period. In regards to sectoral FDI, this research finds that the impacts of the Pandemic vary among the economic sectors. Agricultural and manufacturing sectors tend to experience mixed effects from the Pandemic, while all sub-sectors in the utility and service sector were negatively and significantly affected by the COVID-19 Pandemic in at least one quarter from 2020Q1 to 2021Q1. Moreover, the COVID-19 Pandemic also affects the relation between FDI and GDP: The COVID-19 Pandemic causes FDI to have less impact on GDP. Furthermore, the signaling of the possibility of economic crises caused by the COVID-19 Pandemic masked the effect of the GDP on the FDI.

Keywords: COVID-19; Capital Flow; Spatial Econometrics; ASEAN; Indonesia (search for similar items in EconPapers)
JEL-codes: E22 F21 G11 G15 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2021
New Economics Papers: this item is included in nep-sea
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http://publication-bi.org/repec/idn/wpaper/WP082021.pdf First version, 2021 (application/pdf)

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