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The effects of COVID-19 lockdown on Foreign Direct Investment: evidence from Ecuadorian firms

Camino-Mogro, Segundo and Armijos, Mary (2020): The effects of COVID-19 lockdown on Foreign Direct Investment: evidence from Ecuadorian firms.

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Abstract

Foreign Direct Investment has been described as an important factor that contributes to economic growth being of particular importance in developing countries. In this sense, we assess how lockdown/ restriction policies may affect FDI inflows. For this, we exploit the exogenous variation coming from the COVID-19 pandemic and its lockdown policies in Ecuador. We use a regression discontinuity in time design, jointly with official administrative FDI data, and find an overall large decrease in FDI inflows (-63%). We also assess differences across FDI sources and find stronger effects coming from capital increases (-64%) compared to new firm constitutions. In addition, we explore heterogeneity in terms of FDI’s country of origin and find that the negative effects are mostly from inflows coming from north and south American investments. We also assess whether partial re-opening of activities positively affects FDI, for this we use the two largest cities in the country where we do not find any significant effect. Our main conclusion is that lockdown policies have a negative impact on FDI inflows, result that is of high policy relevance which can be a tool to design investment attraction policies.

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