Do sanctions deter Greenfield FDI inflows? An empirical investigation

Since the end of World War II, sanctions have significantly influenced international relations, particularly by reducing foreign direct investment (FDI) inflows in targeted economies. This study empirically examines the influence of sanctions on global Greenfield FDI inflows across a large panel of emerging markets and developing economies. Specifically, we investigate whether sanctions within a country dyad deter Greenfield FDI inflows from the sender to the target. We further assess the magnitude of these effects, explore the variations by sanction type, and examine potential spillover effects on the sanctions-FDI relationship. Our empirical strategy involves assembling a comprehensive dyadic panel dataset covering international sanctions and Greenfield FDI at the bilateral level, encompassing 110 sender and 113 target countries from 2003 to 2019. We find that bilateral sanctions not only reduce Greenfield FDI inflows from the sender to the target country but also generate negative spillover effects, whereby countries outside the sender-target dyad reduce their investments in the sanctioned country. We perform a battery of robustness checks to confirm the validity of our findings.