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Foreign Investment, COVID-19 Stringency Measures and Risk of Openness

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  • Maela Giofré

Abstract

This paper analyzes the impact of the COVID-19 government stringency index on foreign investment, at the onset of the pandemic. Through a Robust Least Square regression estimation, we highlight that the relationship between foreign investment and the government containment measures displays a significant cross-country heterogeneity that depends on the level of the pandemic risk in the country. Foreign investors have indeed tilted their asset allocation towards those countries that implemented strong containment measures (as measured by the government stringency index) in the presence of a high risk (as measured by the risk of openness index). Conversely, they have shown a lower propensity to invest in assets issued by countries either adopting weak stringency measures despite a high risk of openness, or implementing drastic stringency measures in the presence of a relatively lower risk of openness. The above findings suggest the following interpretation- the government stringency measures and the pandemic risk have jointly affected foreign investors’ behavior, which appeared relatively more prone towards assets issued by those economies better calibrating the policy interventions according to the pandemic harshness.

Suggested Citation

  • Maela Giofré, 2022. "Foreign Investment, COVID-19 Stringency Measures and Risk of Openness," International Business Research, Canadian Center of Science and Education, vol. 15(4), pages 1-74, April.
    • Handle: RePEc:ibn:ibrjnl:v:15:y:2022:i:4:p:74
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    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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