The Effect of COVID-19 on Foreign Direct Investment

This study empirically examines how the coronavirus disease (COVID-19) has impacted foreign direct investment (FDI), using the quarterly data on bilateral FDI flows from 173 home to 192 host economies from the first quarter of 2019 to the second quarter of 2021. The severity of COVID-19 in host economies adversely affected FDI in the manufacturing sector regardless of the entry mode, but the effect of home economies' COVID-19 situation on FDI was insignificant. On the other hand, in the services sector, the severity of COVID-19 in both host and home economies has significantly negative impact on greenfield FDI, not on cross-border M&A.

The COVID-19 pandemic exposes asian banks’ vulnerability to US dollar funding

The COVID-19 pandemic has been unraveling global financial markets and testing Asia’s financial resilience at a time that Asian and global economic activity have slowed due to prolonged trade uncertainties. While it began as a health crisis, this pandemic could turn into an economic and financial crisis if not swiftly contained. Across the region, stock markets have crashed, currencies have tumbled, and short-term capital has taken flight, underscoring fragile market sentiments. Amid flight to safety, the demand for the US dollar has soared. While multiple factors (primarily driven by fear of a precipitous economic slowdown) are behind the surge in demand, it is a global rush to unwind carry trades that drove a rise in dollar funding costs in the interbank and foreign exchange swap markets (Figure 1)…. © 2020 by World Scientific Publishing Co. Pte. Ltd.

COVID-19, nonperforming loans, and cross-border bank lending

A severe economic downturn brought on by the COVID-19 pandemic, combined with high debt levels globally, raises the specter of mounting nonperforming loans (NPLs) in global banking systems. This paper investigates the impact of higher NPL ratios on the availability of bank credit among international lenders and emerging market borrowers. The paper finds that a rise in NPL ratios in both lender and borrower countries is positively associated with higher banking outflows from emerging market economies. Two additional features emerge in the patterns of cross-border banking flows when NPL ratios rise that are related to international credit market imperfections. First, lenders are more responsive to a rise in NPL ratios of same-region borrowers. This is consistent with the “reversion to the mean’’ effect given their generally high exposures to the same-region borrowers. Second, while a high share of US-dollar-denominated debt is generally positively associated with withdrawals of funds from emerging market borrowers, lenders are less responsive to a rise in NPL ratios in emerging market economies if their liabilities are denominated more in US dollars. The results are in line with the “original sin redux” hypothesis. © 2021 Elsevier B.V.