Same Destination, Different Eyes: FDI and Trade Responses to Media Coverage of Geopolitical Risk

Existing measures of geopolitical risk are country-level and assume that all investors face the same risk in a given destination. This paper constructs a directional, bilateral geopolitical risk index that captures how the domestic media of each source country report on geopolitical conflicts involving each destination country. Using GDELT news data, the index covers more than 200 source and destination countries at a monthly frequency. We combine the index with project-level data on greenfield FDI and product-level trade data, and exploit variation across source countries for the same destination and period while controlling for destination-specific shocks. Source countries whose media place greater emphasis on a destination's geopolitical risk subsequently announce more greenfield projects there: a one-standard-deviation increase in the index is associated with a 7% increase in new projects. This suggests that firms may read such coverage as a signal of future market-access frictions and localize production in advance. Consistent with this interpretation, the association is concentrated in projects serving the host market and in sectors that depend on local demand, and is absent among politically aligned country pairs. By contrast, higher risk coverage is followed by a short-lived decline in imports, driven by severe conflicts, while exports do not respond.