Foreign investment in times of COVID-19: How strong is the flight to advanced economies?

This paper investigates the flight to advanced economies by foreign investors at the onset of the COVID pandemic. Amid an overall decline of international positions, countries featuring higher GDPs per capita, and belonging to the groups of advanced, G7, or euro area countries, appear to have been significantly less severely hit by the pandemic than developing countries. Comparing the growth rates of foreign liabilities in the first quarter of 2020, the wedge between advanced and emerging countries is about 3%, and it is at least twice as large for G7 countries. This wedge is paired with evidence of momentum trading by foreign investors. Our results are robust to the inclusion, as controls, of government stringency measures, alternative indicators of the severity of the pandemic, and alternative sample specification and regression methods.