Foreign Direct Investment During the COVID-19 Lockdown

Introduction

Foreign Direct Investment (FDI) has long been regarded as a powerful engine of growth, trade, and economic expansion. FDI flows are among the main driving forces of globalization (Hobbs et al., 2021). They are central to the restructuring of the global economy. The growth of multinational enterprise (MNE) activity in foreign direct investment has outperformed more than any other type of international capital flow (UNCTAD, 2020).

Given the critical role of multinational corporations, developing countries increasingly consider FDI as a basis for economic development, modernization, income growth, and job creation. In addition to the firmly economic advantages, FDI may assist in improving environmental and social circumstances in the host country by, for example, transferring technology and leading to additional socially responsible business strategies. International trade flows, spillovers, and other externalities concerning FDI entries (Nguyen et al., 2019).

Furthermore, FDI promotes growth through increasing total factor productivity and, more broadly, the receiving economy's resource usage efficiency. Regarding this multitude of advantages, all countries, mainly developing ones, are facing increasing competition to attract FDI flows. This competition has intensified in an uncertain international environment. The relative importance of FDI mobilization factors has changed. Today's determining factors for attracting IDE are different from what they were in the past. As a result, foreign investors are more interested in differences in institutional structures between countries. In addition to economic factors, foreign investors are increasingly focused on the quality of institutions and public policies in their host countries. Transparent policies and organizations that effectively implement these policies are critical factors attracting IDE.

Several factors have encouraged the development of FDI and some of which are related to the institutional framework of the country:

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  An economic and political environment is more favorable.

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  Some countries, mainly developing ones, were also trying to attract foreign capital by offering favorable tax conditions.

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  The reduction of barriers to trade and investment has favored FDI, especially those assigned to the strategies called “horizontal,” in which companies want to produce in the foreign market.

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  Technical innovations are an essential factor for FDI development in recent decades. More complex production processes can take the form of vertical integration in the industry field, through investments in various stages of the production process and the establishment of an internationally integrated production chain. In the case of a company with research and development capabilities and a portfolio of trademarks, economies of scale will be achieved by a leading position on the international market and the geographical dispersion of patent exploitation and trademarks;

Recently, the COVID 19 crisis has intensified, more than any other time, the need for new and adapted policies to the needs of foreign investors. With their investment promotion Agencies, the government has to alleviate the impact of this crisis. Implementing new facilities and regulations and mainly digitalizing policies during the crisis makes communication easy, reassuring investors and updating them with any news during and after the COVID.