Wars, blockades, economic sanctions, tensions… geopolitics increasingly influences the regions of the world where investors choose to loosen the purse strings, according to a new study bringing together specialists from King’s College, London.
Thus, companies would be more inclined to favor countries located on the “good side” politically, when it comes to investing abroad.
The work in question stems from the analysis of 20 years of investments on a global scale, including new projects, mergers, acquisitions, as well as the activity of subsidiaries of multinational companies.
Pierre-Louis Vezina of King’s College London and Arti Grover of the World Bank Group examined how investment trends have changed as relations between countries deteriorate.
Result? The “political alignment” of countries now plays a greater role, when the time comes to invest, than 10 years ago.
Thus, countries further apart – a characteristic measured by United Nations voting patterns, public opinion, democratic governance and membership in geopolitical blocs – tend to invest less in each other.
This effect has also been strongly reinforced since the end of the 2010s, particularly after the pandemic, we write in a press release. According to the researchers, this trend is part of a procedure called« friendshoring »where we will seek to ensure the strength of supply chains by moving them, if necessary, to friendly or allied nations.
However, this way of doing things would not be universal. In fact, thefriendshoring would mainly be the work of companies established in developed Western economies, which includes, among others, the United States, Canada and a good part of Europe.
In contrast, in East Asia, particularly in China, Japan, Singapore and South Korea, people seem to care much less about the political allegiances of the country in which they wish to do business. This is especially the case for Chinese companies, which tend to invest more and more in countries with a political vision far from that of Beijing.
“Our results demonstrate the negative impact that such geopolitical divergences could have on developing countries seeking to attract investment from developed Western states, which have proven crucial for job creation, transfer of technologies, and business development,” say the researchers.
