Paper

Monday, May 5

Rudra Guha Biswas (UC Riverside)

Title: The Effect of Geoeconomic Risk on outward FDI from Emerging and Developing Economies

Abstract: Geoeconomics, or the strategic use of economic instruments for geopolitical outcomes, increasingly shapes global trade and investment flows. A rise in geoeconomic tensions has raised concerns about the fragmentation of global foreign direct investment (FDI) patterns. Firms are increasingly expected to shift their international investments using ‘friend-shoring’ strategies. This study examines the impact of geoeconomic risk on outward FDI from emerging and developing market economies (EDMEs), analyzing how these countries’ responses vary based on their state strength. I argue that EDMEs with a stronger state, defined as the insulation of policy makers from domestic interest groups, are likely to reduce their overall outward FDI since they are left with fewer alternative investment opportunities. The paper analyzes country-year data from UNCTAD, covering outward FDI over the 2012-2023 period. It finds evidence that rising geoeconomic risks are associated with a decline in outward FDI from EDMEs. This research contributes to a broader understanding of EDMEs’ reaction to global political and economic risk factors, offering important insights for policymakers in an increasingly geoeconomic world.