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The Effect of COVID-19 on Foreign Direct Investment

Author

Listed:
  • Kazunobu Hayakawa

    (Institute of Developing Economies)

  • Hyun-Hoon Lee

    (Kangwon National University)

  • Cyn-Young Park

    (Asian Development Bank)

Abstract

This study empirically examines how the coronavirus disease (COVID-19) has impacted foreign direct investment (FDI), using the quarterly data on bilateral FDI flows from 173 home to 192 host countries from the first quarter of 2019 to the second quarter of 2021. We measure the severity of COVID-19 damage using three indicators—the number of confirmed cases, the number of deaths, and the stringency index of government policies that restrict people’s activities. We also differentiate FDI flows via two different entry modes—greenfield FDI and cross-border mergers and acquisitions (M&A). We find heterogeneous effects of COVID-19 impacts on FDI by sector and entry mode. The severity of COVID-19 in host countries adversely affected FDI in the manufacturing sector regardless of the entry mode, but the effect of home countries’ COVID-19 situation on FDI was insignificant. On the other hand, in the service sector, the severity of COVID-19 in both host and home countries has significantly negative impact on greenfield FDI, not on cross-border M&A.

Suggested Citation

  • Kazunobu Hayakawa & Hyun-Hoon Lee & Cyn-Young Park, 2022. "The Effect of COVID-19 on Foreign Direct Investment," ADB Economics Working Paper Series 653, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:0653
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    References listed on IDEAS

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    1. Julio, Brandon & Yook, Youngsuk, 2016. "Policy uncertainty, irreversibility, and cross-border flows of capital," Journal of International Economics, Elsevier, vol. 103(C), pages 13-26.
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    Cited by:

    1. LIANG, Licheng, 2023. "Resilience of Japanese Multinational Enterprises' Production Networks during the COVID-19 Pandemic," Discussion Paper Series 742, Institute of Economic Research, Hitotsubashi University.
    2. Mojtaba Hajian Heidary, 2022. "A system dynamics model of the impact of COVID-19 pandemic and foreign direct investment in the global supply chain," Future Business Journal, Springer, vol. 8(1), pages 1-9, December.
    3. Pascal L. Ghazalian, 2025. "Globalization and the Fallout of the COVID-19 Pandemic," World, MDPI, vol. 6(1), pages 1-22, January.
    4. Antonis Tsitouras & Harry Papapanagos, 2026. "Factors Influencing Income Inequality and Inclusive Growth in Greece: A Long-Run and Short-Run Analysis," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 17(1), pages 2889-2919, February.
    5. Chun, Wootae & Wang, Zhan & Gon Kim, Hyun, 2024. "Do environmental regulations drive MNEs’ equity ownership? Considering the impact of exogenous shocks on MNEs’ cross-border acquisitions," Journal of Business Research, Elsevier, vol. 174(C).
    6. Milan Džogan & Roman Lacko & Zuzana Hajduová, 2025. "Empirical research of foreign direct investments efficiency in the European Union on the edge of pandemic outbreak," PLOS ONE, Public Library of Science, vol. 20(1), pages 1-13, January.
    7. Zhu, Sheng & Wang, Tong-Yu & Xie, Wen-Jie & Zhou, Wei-Xing, 2025. "Revealing intrinsic communities in the international foreign direct investment networks through their backbones," Chaos, Solitons & Fractals, Elsevier, vol. 199(P2).
    8. Martin Paul Jr. Tabe-Ojong & Emmanuel Nshakira-Rukundo & Bisrat Haile Gebrekidan, 2023. "COVID-19 and food insecurity in Africa: A review of the emerging empirical evidence," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 50(3), pages 853-878.

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    Keywords

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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development

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