![]() OECD research shows that the stock of non-financial corporate bonds was at an all-time high at the end of 2019, and that this stock “has lower overall credit quality, higher payback requirements, longer maturities, and inferior covenant protections” compared to previous debt cycles (Celik at al (2020). In addition, corporate debt was at record levels at the time the pandemic hit. The pandemic hit at a time when FDI flows were at the second lowest level recorded since 2010 in the aftermath of the global financial crisis (for more information on developments in FDI flows through the end of 2019, see the April 2020 edition of FDI in Figures). ![]() However, there are reasons to have some scepticism regarding the role that FDI can play. ![]() For example, it can have second-order effects on the economy when locally-established MNEs are entering buyer-supplier relations or competing with local firms, hiring and training local workers, and facilitating exports. Beyond direct impacts, FDI can also have potentially important indirect effects on the local economy. Such shifts could have important implications for countries’ economic prospects as MNEs are responsible for a large share of global value-added, trade, employment and R&D (OECD, 2018 Cadestin et al., 2018). For example, MNEs may review and potentially shorten their GVCs to protect themselves from supply-chain disruptions alternatively, they could seek geographic diversification to reduce exposure to location-specific shocks and reduce costs to be able to deal better with crises. In the longer term, the pandemic may lead companies to shift the geographic allocation of their foreign operation. Going forward, cross-border partnerships and collaborations between companies can facilitate finding long-term business solutions, such as ways to resume production while protecting workers’ health. 2 Investment Promotion Agencies (IPAs), charged with attracting and facilitating FDI, are also working with their clients and local networks of foreign affiliates to facilitate business collaborations and assist government efforts to combat the pandemic (see the forthcoming note investment promotion in times of uncertainty: OECD agencies during and post COVID-19 crisis). 1 As such, they are well-positioned to help governments deal with the effects of the pandemic. Multinational enterprises (MNEs) are generally larger, more research and development (R&D)-intensive, and more productive than purely domestic firms. For example, the primary and manufacturing sectors, which account for a larger share of FDI in many of these economies than in most developed economies, have been particularly hard hit by the pandemic (see forthcoming OECD note on implications of the COVID-19 public health and economic crisis on development finance).Ĭontributions to the recovery from FDI can go beyond financing. Unfortunately, it appears that the impacts of the pandemic on FDI flows to these economies may be particularly severe. FDI could be particularly important for emerging and developing economies given that other sources of international financing, including portfolio investment, have fled these economies (see OECD Investment policy responses to COVID-19). Alfaro and Chen, 2012 Desai et al., 2008). Evidence from past crises has shown that foreign-owned affiliates, including small and medium enterprises, can show greater resilience during crises thanks to their linkages with, and access to the financial resources of, their parent companies (e.g. The eventual impact on FDI flows will depend on the success of both these public health and economic policy responses.įDI could play an important role in supporting economies during the economic recovery following the pandemic. Governments have also taken significant economic policy actions to forestall, or cushion, the economic consequences of the public health crisis. ![]() These public health measures have caused severe economic disruptions that impact the foreign direct investment (FDI) decisions of firms. Many governments have taken stringent public health measures to limit the spread of the COVID-19 pandemic.
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