An Analysis of Government Policy Responses to the Pandemic on Foreign Investment

• In Event: Pandemic Effects

Abstract

Comparing Covid-19 cases and mortality rates across countries, it is obvious that different government policy responses to the pandemic made a big difference in containing it. More specifically, a few countries in Asia and Oceania, including South Korea, Taiwan, Singapore, New Zealand, and Australia, can be counted as successful countries that have dealt with the pandemic situations more effectively than others by implementing aggressive early responses and having a structured disease management system. Researchers have pointed to different factors that enabled these countries to respond in this timelier and more efficient fashion, such as concentration of power, active use of digital technologies, transparency, civic responsibility, public health care system etc.
Then, my question is whether these factors bear significantly on attracting and securing foreign investment during and after the pandemic. In order to recover the economic hardship that Covid-19 has caused, countries are expected to compete against one another for foreign investment, given the fact that foreign investment globally has been decreased approximately by 40% in 2020. In this context, governments need to implement investment policies that balance between two policy aims: one, attracting and securing foreign investment by upholding investor confidence and the other, protecting critical sectors by tightening investment screening mechanisms.
Given this situation, the factors that contributed to a countries’ effective policy responses to the pandemic are likely to have contradictory effects on foreign investment. For instance, existing literature pointed out that authoritarian regimes, left-wing governments and their extensive welfare programs, or concentration of power has been generally considered less appealing to foreign investors because such factors are likely to increase the risk of policy volatility as well as the likelihood of hurting investors’ rights or implementing harsher regulations. On the other hand, a country having managed the pandemic successfully heightens its reputation for the capability of providing safer environments for foreign investors.
Therefore, in this paper, I analyze how political factors related to strong state capacity for crisis management affect a country’s investment policy and its foreign investment flows during the Covid-19 pandemic. More specifically, by comparing approximately 20 countries, I investigate whether central government’s political grip of its people and bureaucratic structure as well as the presence of expansive infrastructure of social security and health care system stands out to foreign investors as new favorable signals, and thereby more foreign investment flows in the countries that have successfully managed the pandemic. My paper provides a vital implication for foreign investment literature, suggesting that the pandemic has changed foreign investors’ point of view on the political factors that had been previously regarded ill-favored and now are placed into new perspectives in terms of appraising a country’s investment risk.

Author

• Kyu Young Lee, Prairie View A&M University