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Enjoy the silence? (De)globalization and cross-border investment – a gravity approach

Author

Listed:
  • Ana Abeliansky

    (Oesterreichische Nationalbank)

  • Christian Alexander Belabed
  • Julian Mayrhuber

    (Oesterreichische Nationalbank)

Abstract

Amidst increasing geopolitical tensions and the growing discourse on “deglobalization,” we study how geopolitical (de)alignment correlates with one of the main drivers of globalization – cross-border investment. Extending a gravity model with data on voting behavior at the United Nations General Assembly, we find that an increase of geopolitical dealignment is associated with a decline in both foreign direct investment (FDI) and portfolio investment (PI). The decline is stronger for FDI. The relevance of geopolitical dealignment to FDI has increased after the financial crisis, suggesting that geopolitical considerations are becoming increasingly important for foreign capital allocation. While an increase in the geopolitical distance between “nonfriendly” country pairs is associated with a significant decline in cross-border investment, our results do not show such a strong relation for “friendly” country pairs, indicating that geopolitical differences between “friendly” countries do not immediately lead to a reduction of bilateral investment. Overall, our findings suggest that continued geopolitical fragmentation is likely to lead to a decline in cross-border investment.

Suggested Citation

  • Ana Abeliansky & Christian Alexander Belabed & Julian Mayrhuber, 2024. "Enjoy the silence? (De)globalization and cross-border investment – a gravity approach," OeNB Bulletin, Oesterreichische Nationalbank (Austrian Central Bank), issue Q2/2024-3.
    • Handle: RePEc:onb:oenbbu:y:2024:i:q2/2024-3:b:1
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    File URL: https://www.oenb.at/dam/jcr:838edc4d-aade-4131-ada9-457d01d48e09/bulletin-july-2024-(de)globalization-and-cross-border-investment.pdf
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    More about this item

    Keywords

    capital flows; cross-border investment; deglobalization; geopolitical fragmentation;
    All these keywords.

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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