Global FDI inflows and outflows in emerging economies Post-COVID-19 era

Abstract

FDI (Foreign Direct Investment) is frequently viewed as a critical measure of a country's economic strength and potential. Consequently, this paper investigates why countries attract FDI by utilizing factors and channels such as vertical or horizontal FDI as well as COVID-19’s impact on FDI flows in emerging economies with data from 1990 to 2020. Models of kinked exponential growth for estimating growth rates and the Andrew and Zivot trend formulations are used to analyze the rise in FDI inflows. The FDI inflow channels are estimated using dynamic panel data analysis, with a generalized method of moments for emerging economies as a whole and an autoregressive distributed lag-pooled mean group for specific countries. The countries studied were India, China, Russia, South Africa, and Brazil. Except for India, where the trend has accelerated, the rest of the nations in the emerging economies category has seen significant or minor declines. Overall, vertical and horizontal factors influence FDI inflows to emerging economies. However, estimations show that vertical and horizontal factors promote FDI inflow into the Russian Federation and India. China's horizontal motivation, on the contrary, is critical. Inflows of FDI into Brazil and South Africa appear to be unrelated. The pandemic scenario affects FDI in Brazil but not in other emerging economies. FDI determinants differ per country. In order to improve their economic situation following the pandemic, developing countries may establish adequate FDI policies to attract FDI.