Canadian FDI in a post COVID-19 world: have we reached the tipping point?

Abstract

The highly contagious COVID-19 virus spread across the world in a matter of months, beginning in the second half of 2019 and being declared a global pandemic by March, 2020. To limit its continued spread, large parts of economies around the world were shut down, including in Canada and the USA. These actions resulted in levels of unemployment and contractions in GDP not seen since the Great Depression. Superimposed on these truly extraordinary events have been global supply challenges which manifested themselves in an inability of governments to procure critical medical equipment, which exacerbated the health care crisis, increased protectionist sentiments, and led to new protectionist legalisation across many countries. Furthermore, the COVID-19 shock will reinforce trends that were already present globally to shorten supply chains and slow FDI growth, serving as an important tipping point that should encourage governments to consider policies to mitigate the impact of such changes on host economies. This paper considers how these economic, financial, and legislative developments will likely impact FDI patterns for years to come.

Risk Management of Foreign Direct Investment: The COVID-19 Crisis Experience

“…On average, half of the profits of multinational companies' affiliates remain in the host country in the form of reinvested income [1,30]. Announced green-field investment projects in emerging economies decreased by 46%, mainly due to processes in the manufacturing sector [14]. All this indicates that in the context of the COVID-19 pandemic, foreign investors are increasingly reluctant to respond to new investment opportunities.…”

“…During the financial crisis of 2008, investments reached their lowest point only in 2009, and their decline took place in economically developed countries. However, this time there is the influence of financial flows on the actual ability of investors to invest, which in some cases is physically impossible [14]. In this regard, it is assumed that, for a number of reasons, COVID-19 might have a significantly stronger negative impact on capital flows than the previous crisis.…”

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

“…For instance, Phan and Narayan [ 7 ] assess the pandemic impact on stock price, Gil-Alana and Monge [ 8 ] focus on its impact on oil price, whereas Narayan [ 9 ] based his study on the exchange rate, and Vidya and Prabheesh [ 10 ] investigate the impact of the virus on international trade. Meanwhile, recent studies [see [ 6 , 11 , 12 ] focus on the economic implication of the global pandemic on FDI flows. However, none of these studies considered the effect of the COVID-19 pandemic on FDI flows in OECD countries.…”