Pandemic arbitrage in foreign direct investments: A perspective on the modes of entry

Paul Cheung, Ammu George, Taojun Xie and Yan Zhu

Applied Economics Letters, 2024, vol. 31, issue 10, 901-906

Abstract: Foreign direct investments (FDI) are considered long-term and less sensitive to global shocks as they involve large amounts of capital investment that are costly to reverse. This study examines whether there was a reallocation of FDI flows from destination markets more affected by the pandemic, resulting in a pandemic arbitrage. Using bilateral FDI inflows data from January 2019 to December 2020, we show that FDI flows declined to destination markets that performed worse than source markets in COVID-19 infection rates, with the effect more evident in greenfield FDI. Our results also show that bilateral colonial ties and destination market COVID-19 policy stringency impact the pandemic arbitrage in FDI flows, especially for M&As.

Date: 2024
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DOI: 10.1080/13504851.2022.2156459

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