COVID-19 regulatory responses and FDI in the United States: trends and implications for capital flows

Abstract

Investment regulations implemented by the US government as part of the response to COVID-19 have implications for capital flows. The objective of this paper is to analyse how these regulations affect FDI flows, the potential long-term consequences for the United States and developing economies. We use secondary data to chart trends and simple descriptive and analytic framework to synthesise arguments and perspectives. The effects of COVID-19 related restrictions on FDI in the U.S. run through the invocation of the Defense Production Act. Our analysis indicates that these restrictions are highly concentrated on investments that fall under the regulations of Committee on Foreign Investment in the United States, which has increasingly become active in restricting investments flows. While this bodes ill for FDI inflows into the U.S and global development prospects, it is also an opportunity for developing countries to reform and refocus on FDI flows from emerging economies.

Keywords:

• Foreign Direct Investment (FDI)
• COVID-19
• government policy
• capital flows
• CFIUS
• development
• international trade

JEL Classification::

• F 12
• F21
• H12
• G38
• F23
• F36
• F60

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 “Systems and assets, whether physical or virtual, so vital to the United States that the incapacity or destruction of such systems and assets would have a debilitating impact on security, national economic security, national public health or safety, or any combination of those matters.”

2 According to the Global Business Policy Council, the index is calculated as a “weighted average of the number of high, medium, and low responses to questions regarding the likelihood of making a direct investment in a market over the next three years.

3 This would have negative implications for environmental quality in the region (Nyiwul, 2021).

4 For further literature on the implications of China’s BRI for the determinants of FDI and OFDI, see summary and further literature in Yu et al. (2020).

Additional information

Notes on contributors

Linus Nyiwul

Linus Nyiwul is currently chair of the Economics department at Gettysburg College. Dr. Nyiwul joined Gettysburg College in the fall of 2009 as a Visiting Assistant Professor. He was appointed Assistant Professor of Economics and Africana Studies in 2010. Before joining Gettysburg College, Dr. Nyiwul served as instructor in the Talent Advance Program at the School of Management, University of Massachusetts Amherst, from spring 2007 through spring 2008.