The impact of COVID-19 induced uncertainty on FDI inflows: a comparative analysis of DCs and LDCs

Abstract

The World Pandemic Uncertainty Index (WPUI) is employed to examine the effects of the COVID-19 pandemic on net foreign direct investment inflows (FDI) for 56 LDCs and DCs from 2011 to 2022. This study yields two significant findings through the utilization of fixed effects and two-step difference GMM models. First, Higher levels of uncertainty caused by COVID-19 affect FDI inflows negatively. Second, the adverse impact is greater in Less Developed Countries (LDCs) compared to Developed Countries (DCs). The results indicate that while uncertainty induced by COVID-19 has a detrimental impact on FDI inflows, the impact differs between DCs and LDCs.