When two quarrel, the third rejoices: Windfall FDI and the early winners of the Russian-Ukrainian war

Maximilian W. Dirks

No 1161, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: Geopolitical conflicts significantly reshape global investment patterns, potentially creating unexpected economic opportunities. Using the Russian invasion of Ukraine as a quasi-exogenous shock, this study estimates the impact of redirected foreign direct investment (FDI) flows on economic output in bloc-free countries following this major geopolitical event. Employing a Difference-in-Differences model using Orbis Crossborder investment data, the findings reveal a sharp decline in Western FDI into Russia and Russia-leaning countries, alongside a significant increase in cross-border investment in bloc-free nations, with Brazil, India, Mexico, and Saudi Arabia among the primary beneficiaries. Using a Bayesian VAR, I estimate that these windfall FDI have increased GDP in the recipient countries by up to 2 %, underscoring the economic benefits associated with geopolitical neutrality.

Keywords: Foreign direct investment; geoeconomics; fragmentation (search for similar items in EconPapers)
JEL-codes: F21 F23 F51 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-cis and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:325493

DOI: 10.4419/96973345

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