Pandemic Arbitrage in Foreign Direct Investments: A Perspective on the Modes of Entry

Abstract

Foreign Direct Investments (FDI) are often 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 a pandemic arbitrage through “distance” in COVID-19 infection rates impacts FDI. Using bilateral FDI inflows data from January 2019 to December 2020, we show that COVID-19 pandemic shock deterred global FDI mainly through the greenfield FDI mode of entry. Our results also show that strong social connections and loose COVID-19 policy stringency alleviates the pandemic’s effect on FDI, especially for M&As.