Does COVID-19 shock endanger the flows of FDI in OECD? Empirical evidence based on AMG panel estimator

Abstract

AbstractThe role of foreign direct investment flows in the growth and development of any nation cannot be overemphasized. However, different economic issues influence the pattern and flow of several investment channels. Notable among such economic crises is the recent COVID-19 pandemic that ravaged the entire global economy and restricted the flow of foreign investment among countries. With the perceived influence of the pandemic on businesses and investments, this study investigates the impact of COVID-19-related shock on the FDI flows of OECD countries. Using the Augmented Mean Group (AMG) long-run estimator, it reveals that the COVID-19 shock harms FDI inflows across OECD but enhances the outflows of FDI from OECD. Furthermore, the comparative analysis of the Eurozone and non-Eurozone countries in OECD shows that the effect of COVID-19 shock on FDI flows is positive in the former but otherwise in the latter. Hence, the monetary authorities of these countries must implement favorable monetary policies that will enhance new and ongoing investments as well as the expansion of industrial activities. Also, policymakers in this region should encourage the formulation of economic frameworks that are resilient to several global and country-specific economic uncertainties to safeguard the economies from unforeseen circumstances.