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The effects of COVID-19 lockdown on Foreign Direct Investment: evidence from Ecuadorian firms

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  • Camino-Mogro, Segundo
  • Armijos, Mary

Abstract

Foreign Direct Investment has been described as an important factor that contributes to economic growth being of particular importance in developing countries. In this sense, we assess how lockdown/ restriction policies may affect FDI inflows. For this, we exploit the exogenous variation coming from the COVID-19 pandemic and its lockdown policies in Ecuador. We use a regression discontinuity in time design, jointly with official administrative FDI data, and find an overall large decrease in FDI inflows (-63%). We also assess differences across FDI sources and find stronger effects coming from capital increases (-64%) compared to new firm constitutions. In addition, we explore heterogeneity in terms of FDI’s country of origin and find that the negative effects are mostly from inflows coming from north and south American investments. We also assess whether partial re-opening of activities positively affects FDI, for this we use the two largest cities in the country where we do not find any significant effect. Our main conclusion is that lockdown policies have a negative impact on FDI inflows, result that is of high policy relevance which can be a tool to design investment attraction policies.

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  • Camino-Mogro, Segundo & Armijos, Mary, 2020. "The effects of COVID-19 lockdown on Foreign Direct Investment: evidence from Ecuadorian firms," MPRA Paper 104821, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:104821
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    Cited by:

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    3. Hayakawa, Kazunobu & Hyun-Hoon, Lee & Cyn-Young, Park, 2022. "Impacts of COVID-19 on foreign direct investment," IDE Discussion Papers 831, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    4. Ferry Syarifuddin & Maman Setiawan, 2022. "The Relationship between COVID-19 Pandemic, Foreign Direct Investment, and Gross Domestic Product in Indonesia," Sustainability, MDPI, vol. 14(5), pages 1-16, February.

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    More about this item

    Keywords

    COVID-19; Lockdown; Foreign Direct Investment; Regression Discontinuity; Ecuador;
    All these keywords.

    JEL classification:

    • D00 - Microeconomics - - General - - - General
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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