Impact of Pandemic on Foreign Direct Investment - A Study from Global Perspective

Abstract

Abstract: The global economic landscape has been significantly influenced by health pandemics, leading to heightened uncertainties. Using data from past epidemics and economic downturns, this research paper examines the repercussions of these health crises on global economies. Prominent among these health crises is the 1918 influenza epidemic, which Garrett (2008) reveals had severe impacts on investment, human capital, and consumer behaviour. In more recent history, the SARS outbreak in 2003, as analysed by Lee and McKibbin (2004), cost the world an estimated USD 40 billion, highlighting the tangible economic costs of health pandemics. COVID-19, emerging at the end of 2019, has created another layer of global economic uncertainty. Containment measures such as lockdowns and social distancing have led to a ripple effect, causing a downturn in various economic sectors. To better understand the scale of this uncertainty, this study employs the newly developed World Pandemic UncertaintyIndex (WPUI) – a tool introduced in 2020 specifically to measure the economic and political uncertainties introduced by pandemics.A crucial focus of the research is the impact of health pandemics on Foreign Direct Investment (FDI). FDI, a major non-debt financial resource, plays an instrumental role in the economic development of nations. It introduces technical know- how, generates employment, and can be seen as a barometer of a country's economic health. Using the WPUI, the study investigates the consequences of health pandemics on FDI in 142 countries from 1996 to 2019. It identifies patterns in different regions and economic brackets,adding new insights to existing literature. The COVID-19 pandemic has significantly impacted global foreign direct investment (FDI), causing disruptions in both inflows and outflows across countries and regions. This study, drawing from quantitative data from the World Bank and UNCTAD and qualitative insights from FDI experts, examines the extent and nature of this impact from 2019-2023. Results indicate a pronounced decline in FDI flows in 2020 and 2021, with varying impacts based on regional development, economic structures, and exposure to the pandemic. Factors such as digitalisation, diversification, and cooperation have influenced these FDI trends. This researchoffers valuable insights for policymakers navigating the post-pandemic FDI landscape, emphasising the need for further studies on the long-term effects of the pandemic on FDI dynamics. The study further narrows down its focus to India, analysing the FDI trends before and after the advent of COVID-19. Secondary data sources, including RBI bulletins and economic survey reports, provide insights into FDI equity inflows during the pandemic. Preliminary results suggest a considerable dip in FDI equity inflows at the onset of the pandemic. However, there's a noticeable recovery in the second quarter of FY-20, aided in part by significant investments, such as Google's $10 billion injection into the Indian market.In light of these findings, the study offers several solutions to mitigate the impact of pandemics on FDI. These range from promoting investment stability, diversifying investment promotion, and supporting digital transformations, to ensuring global health preparedness and implementing robust economic recovery plans. Effective execution of these strategies, tailored to a country's specific needs, can create an environment more receptive to foreign investment