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Being an emerging economy: To what extent do geopolitical risks hamper technology and FDI inflows?

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  • Nguyen, Trang Thi Thuy
  • Pham, Binh Thai
  • Sala, Hector

Abstract

This paper evaluates the impact of geopolitical risk (GPR) on total factor productivity (TFP) and the inflows of foreign direct investment (FDI) for a group of 18 emerging economies between 1985 and 2019. Based on Granger causality panel data tests, we show that the trajectories of these variables cannot be neglected to explain one another. To account for cross-equation influence, we estimate seemingly unrelated regression (SUR) models and uncover a significant and robust negative impact of GPR on TFP and FDI. Counterfactual simulations provide a quantitative approximation of GPR’s impact in 2015–2019, which is substantial in terms of TFP growth but small in terms of FDI. For the emerging economies to consolidate their economic progress, geopolitical stability is essential.

Suggested Citation

  • Nguyen, Trang Thi Thuy & Pham, Binh Thai & Sala, Hector, 2022. "Being an emerging economy: To what extent do geopolitical risks hamper technology and FDI inflows?," Economic Analysis and Policy, Elsevier, vol. 74(C), pages 728-746.
    • Handle: RePEc:eee:ecanpo:v:74:y:2022:i:c:p:728-746
    DOI: 10.1016/j.eap.2022.04.005
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    More about this item

    Keywords

    Geopolitical risk; TFP; FDI; Emerging economies;
    All these keywords.

    JEL classification:

    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • F68 - International Economics - - Economic Impacts of Globalization - - - Policy
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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