Fractured world map symbolizing the impact of global events on investment flows.

Navigating Uncertainty: How Global Events Impact Your Investments

Elliot Brynn in Business & Economy July 2025 • 4 min read.

"A look at the ripple effects of COVID-19 and geopolitical tensions on foreign direct investment."

In today's interconnected world, events like pandemics and geopolitical conflicts can send shockwaves through the global economy, significantly impacting investment decisions. One key area affected is Foreign Direct Investment (FDI), which represents investments made by companies in other countries. Understanding how these global events influence FDI is crucial for investors and policymakers alike.

A recent study delved into the effects of the COVID-19 pandemic and the Russia-Ukraine war on FDI inflows, particularly in developing economies. The research examined how macroeconomic factors like GDP growth, inflation, interest rates, and exchange rates interact with FDI in a sample of 13 countries, including Bangladesh, China, and several European nations.

This article breaks down the study's findings, exploring the challenges and opportunities that arise in the face of global uncertainty and offering insights for navigating the ever-changing investment landscape. Learn how to navigate uncertainty and how it may influence your investments.

The Domino Effect: How Global Crises Reshape Investment

Fractured world map symbolizing the impact of global events on investment flows.

The study highlights that events like the Russia-Ukraine war and the COVID-19 pandemic significantly altered the global FDI landscape. These crises introduced considerable economic policy uncertainty, affecting investor confidence and prompting shifts in investment strategies. The research specifically points to the following microeconomic factors as key influencers:

These factors don't operate in isolation. They interact in complex ways, creating a ripple effect that impacts investment decisions. For example, rising inflation, often a consequence of supply chain disruptions during a crisis, can lead to higher interest rates, making borrowing more expensive and potentially deterring investment.

GDP Growth: A country's economic growth prospects strongly influence FDI inflows. Investors seek opportunities in economies with strong growth potential.
Inflation: High inflation erodes the value of investments and increases economic instability, discouraging FDI.
Interest Rates: Interest rates can impact the cost of borrowing and the attractiveness of investment opportunities.
Exchange Rates: Fluctuations in exchange rates can create uncertainty and affect the profitability of investments.

The study employed panel data analysis and linear regression, utilizing a random effects model to assess the impact of these factors on FDI in the selected countries. Data was sourced from the World Bank and the United Nations Conference on Trade and Development (UNCTAD) database, covering the period from 2018 to 2022.

Adapting to the New Normal: Strategies for Investors and Policymakers

The research underscores the need for both investors and policymakers to adapt to the realities of a more volatile and uncertain global landscape. For investors, this means diversifying portfolios, carefully assessing risks, and staying informed about global events and their potential economic consequences. For policymakers, it highlights the importance of creating a stable and predictable economic environment that attracts foreign investment, even in the face of global challenges. By implementing sound economic policies and fostering a business-friendly climate, countries can mitigate the negative impacts of global crises and position themselves for long-term economic growth and prosperity. It's essential to promote FDI inflows, support foreign investors, and emphasize mechanisms for uncertainty reduction.

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This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2401.03096,

Title: The Effects Of Covid-19 And The Russia-Ukraine War On Inward Foreign Direct Investment

Subject: econ.gn q-fin.ec

Authors: Ms Hosen, Sm Hossain, Mn Mia, Mr Chowdhury

Published: 05-01-2024

Everything You Need To Know

What is Foreign Direct Investment (FDI) and why is it important to understand its dynamics in the face of global events?

Foreign Direct Investment (FDI) represents investments made by companies in other countries. Understanding the dynamics of FDI is crucial because it reflects investor confidence in a country's economic prospects and stability. Global events, such as pandemics and geopolitical conflicts, can significantly impact FDI flows by creating uncertainty and altering investor strategies. Monitoring and understanding these impacts allows investors and policymakers to adapt and make informed decisions, fostering stability and growth even during turbulent times. Without a clear picture of how global events affect FDI, investors risk misallocating capital, and policymakers may struggle to implement effective economic strategies.

How did the COVID-19 pandemic and the Russia-Ukraine war impact Foreign Direct Investment (FDI) inflows, particularly in developing economies?

The COVID-19 pandemic and the Russia-Ukraine war introduced significant economic policy uncertainty, leading to shifts in investment strategies that directly impacted Foreign Direct Investment (FDI) inflows. These events disrupted supply chains, increased inflation, and heightened geopolitical risks. Developing economies, in particular, faced challenges as investors reassessed risk profiles and growth prospects. This uncertainty affected investor confidence, prompting shifts in investment strategies and a re-evaluation of risk profiles. The combined effect of disrupted supply chains, increased inflation, and heightened geopolitical risks significantly altered the global FDI landscape.

According to the study, what macroeconomic factors are key influencers of Foreign Direct Investment (FDI) and how do they interact?

The study identifies several key macroeconomic factors influencing Foreign Direct Investment (FDI): GDP growth, inflation, interest rates, and exchange rates. These factors don't operate in isolation; they interact in complex ways. For instance, rising inflation, often a consequence of supply chain disruptions, can lead to higher interest rates, making borrowing more expensive and potentially deterring investment. Similarly, fluctuations in exchange rates can create uncertainty and affect the profitability of investments, thereby influencing FDI decisions. Strong GDP growth, on the other hand, typically attracts FDI as it signals economic opportunities and stability.

What strategies should investors and policymakers adopt to navigate the new volatile and uncertain global landscape concerning Foreign Direct Investment (FDI)?

Investors should diversify portfolios, carefully assess risks, and stay informed about global events and their potential economic consequences to navigate the volatile global landscape. Policymakers should focus on creating a stable and predictable economic environment that attracts foreign investment, even amidst global challenges. This includes implementing sound economic policies, fostering a business-friendly climate, promoting Foreign Direct Investment (FDI) inflows, supporting foreign investors, and emphasizing mechanisms for uncertainty reduction. Diversification helps mitigate risk, while staying informed allows for proactive adjustments to investment strategies. By creating a stable and predictable economic environment, countries can attract and retain foreign investment, fostering long-term economic growth and prosperity.

How can promoting Foreign Direct Investment (FDI) inflows and supporting foreign investors help mitigate the negative impacts of global crises, according to the information?

Promoting Foreign Direct Investment (FDI) inflows and actively supporting foreign investors are crucial mechanisms for mitigating the negative impacts of global crises. When countries prioritize FDI, they signal a commitment to economic stability and growth, which can help offset the uncertainty caused by global events. Support for foreign investors, such as streamlined regulations and favorable tax policies, encourages continued investment and fosters a sense of partnership. These measures enhance economic resilience, providing a buffer against external shocks and setting the stage for long-term prosperity. By actively encouraging FDI and supporting foreign investors, countries can create a more robust and resilient economic environment, better equipped to withstand global crises.