The effect of natural disasters on direct foreing investiment from countries

Joseli Konig Ramos, Juliano Krug, Paula Carolina Ferretti, Adriana Kroenke

Abstract


Objective: This study aims to analyze the influence of natural disasters on countries' FDI.

Method: We used data from 137 countries, considering the period from 2011 to 2017. The secondary data used to measure Foreign Direct Investment are from the UNCTAD - United Nations Conference on Trade and Development following the study by Alfaro et al. (2004). For data on natural disasters, the EM-DAT database - The International Disaster Database provided by CRED - Center for Research on the Epidemiology of Disasters - was used, based on the studies by Toya & Skidmore (2007) and Escaleras & Register (2011). The analysis was performed through Linear Regression of panel data.

Originality/Relevance: This study points to a direction of research for those interested in expanding the flows of Foreign Direct Investment in their countries, being significant in the field of business, government, public policy makers and the third sector.

Results: The results show that when an economy suffers from natural disasters that cause deaths and, consequently, a reduction in human capital, foreign investors can negatively portray this fact. On the other hand, the number of occurrences and the loss in millions of dollars when analyzed individually do not discourage FDI and the presence of multinationals in the affected country. The variables: total of injured, total of affected, and total of homeless have no relation with FDI in the analyzed sample. It is indicated that, in the face of a natural disaster, countries create opportunities for the replacement and reconstruction of infrastructure and human capital.

Theoretical contribution: We seek to contribute theoretically to the recent increase of studies that verify the relationship between natural disasters and FDI in the light of the institution-based view. We direct greater understanding to the premise that natural disasters affect a country's economy as they cause FDI reduction, and we provide the foundation for future studies. While previous studies are concerned with FDI determinants, being tax incentives and property rights, this study focuses specifically on the different variables that aggregate natural disasters. In addition, the study aims to expand the perception of decision makers, belonging to the government, private entities and the third sector, so that they can reduce and prevent the occurrence of natural disasters, thus attracting FDI flows in their countries.


Keywords


Natural disasters; Foreign direct investment; International strategy.

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DOI: https://doi.org/10.5585/riae.v20i1.16234

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