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

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  • Paul Cheung
  • Ammu George
  • Taojun Xie
  • Yan Zhu

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.

Suggested Citation

  • Paul Cheung & Ammu George & Taojun Xie & Yan Zhu, 2024. "Pandemic arbitrage in foreign direct investments: A perspective on the modes of entry," Applied Economics Letters, Taylor & Francis Journals, vol. 31(10), pages 901-906, June.
    • Handle: RePEc:taf:apeclt:v:31:y:2024:i:10:p:901-906
    DOI: 10.1080/13504851.2022.2156459
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