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When two quarrel, the third rejoices: Windfall FDI and the early winners of the Russian-Ukrainian war

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  • Dirks, Maximilian W.

Abstract

Geopolitical conflicts significantly reshape global investment patterns, potentially creating unexpected economic opportunities. Using the Russian invasion of Ukraine as a quasi-exogenous shock, this study estimates the impact of redirected foreign direct investment (FDI) flows on economic output in bloc-free countries following this major geopolitical event. Employing a Difference-in-Differences model using Orbis Crossborder investment data, the findings reveal a sharp decline in Western FDI into Russia and Russia-leaning countries, alongside a significant increase in cross-border investment in bloc-free nations, with Brazil, India, Mexico, and Saudi Arabia among the primary beneficiaries. Using a Bayesian VAR, I estimate that these windfall FDI have increased GDP in the recipient countries by up to 2 %, underscoring the economic benefits associated with geopolitical neutrality.

Suggested Citation

  • Dirks, Maximilian W., 2025. "When two quarrel, the third rejoices: Windfall FDI and the early winners of the Russian-Ukrainian war," Ruhr Economic Papers 1161, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:325493
    DOI: 10.4419/96973345
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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
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions

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