Does Comprehensive Geopolitical Risk Deter FDI Outflows: Evidence from China

Abstract

What is geopolitical risk to multinational enterprises in a world flooded with geopolitical changes? Does such risk impact foreign direct investment flows? To answer these questions, we attempt to develop the concept of comprehensive geopolitical risk by expanding the border of geopolitical risk in the literature to include both implicit and explicit risks that overseas investors face in host countries. We further construct an index by mining big data from a news report database, which we use to examine how comprehensive geopolitical risk impacts FDI outflows from China to 154 host countries between 2003 and 2020. Our findings indicate that comprehensive geopolitical risk does negatively impact FDI outflows, especially in the energy sector. Implicit geopolitical risk also significantly deters FDI outflows.

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