UBC Undergraduate Research

Make Money Move : Understanding the Nexus Between Geopolitical Risk and Foreign Direct Investment Luo, Danielle Youlan

Abstract

The field of International Political Economy (IPE) conventionally looks at the relationship between domestic political risks and economic development, but in an international system with an increasing number of transnational challenges and crosscurrents introduced by new political forces and economic powers, the concept of geopolitical risk has become an additional salient dimension of IPE. Many traditionally domestic political risks now include a transnational facet due to rapid globalization and increased frequency of interactions between countries, propelling geopolitical risk to the forefront of economic decisions. This study verifies through empirical analysis if the most prominent discrete, regional geopolitical risks have any material impacts on investment flows, with a particular focus on foreign direct investment (FDI). This study’s contribution is two-fold. First, results and analysis of this research suggest that regional geopolitical risks do not have uniform impacts across the board on all countries affected by the regional risk factor, as there are both winners and losers in terms of their respective volumes of inward FDI. Second, analysis of this study identifies that the key determinants of the winners from geopolitical risks are (1) their respective attractiveness to Chinese investors, a rising source of FDI exporter and a new class of bargain hunters that seeks to acquire global assets; and (2) investors’ flight-to-safety reactions, which favour economies with better and more existing infrastructure and specialized clusters of industries.

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Attribution-NonCommercial-NoDerivatives 4.0 International

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