The Influence of Geopolitical Risk on International Direct Investment and Its Countermeasures

Abstract

Recent years have seen frequent geopolitical conflicts and the world economy has fallen into a recession. In order to explore how wars, terrorist attacks and international tensions affect foreign direct investment (FDI), this paper uses the fixed-effect model to investigate the impact of geopolitical risks on FDI flows in 41 countries during 2003–2020 from the perspective of market seeking, natural resource seeking and strategic resource seeking. The results show that, on the whole, geopolitical risks can significantly inhibit the inflow of foreign direct investment and hinder the development of domestic economy. The market size, natural resources and science and technology of the host country are important factors to attract foreign investment. Trade dependence has a moderating effect on the negative impact of geopolitical risks. Countries that depend on international trade may eliminate geopolitical frictions through economic cooperation. The impact of geopolitical risk is heterogeneous in countries with different levels of economic development. The impact of geopolitical risk on foreign direct investment in developed economies is not significant.