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Pandemics and FDI inflows: The role of infrastructures

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  • Zhao, Kai
  • Mo, Minjie
  • Shen, Jun

Abstract

This study investigates the effect of pandemics pertaining to foreign direct investment (FDI) target countries on FDI inflows, with a focus on how FDI target countries' infrastructures modify the effect. Using a two-stage game model, we observe that (1) the effect of the pandemics associated with FDI target countries on FDI inflows is negative; and (2) the type of infrastructures heterogeneously modifies this effect. Moreover, the empirical results based on China’ data are consistent with theoretical findings. These results show that (1) pandemics of FDI target countries significantly reduce FDI inflows from China. As the worldwide pandemic uncertainty increases by 1%, FDI inflows from China decrease by 3.9%; (2) different types of infrastructures heterogeneously modify the effect of pandemics on FDI inflows. FDI target countries’ transportation infrastructures significantly mitigate the negative effect of pandemics on FDI inflows, whereas their information and energy infrastructures significantly exacerbate this effect. The empirical findings overcome endogeneity problems and exhibit robustness.

Suggested Citation

  • Zhao, Kai & Mo, Minjie & Shen, Jun, 2024. "Pandemics and FDI inflows: The role of infrastructures," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 552-566.
  • Handle: RePEc:eee:reveco:v:93:y:2024:i:pa:p:552-566
    DOI: 10.1016/j.iref.2024.03.048
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    Cited by:

    1. Noah Afees O. & David Olalekan O., 2024. "Infrastructure Development And External Financing Nexus In Sub-Saharan Africa: Panel Vecm Analysis," Folia Oeconomica Stetinensia, Sciendo, vol. 24(2), pages 229-251.

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    More about this item

    Keywords

    Pandemics; FDI inflows; Infrastructures;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F30 - International Economics - - International Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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