The effect of geopolitical risks on TNC location decision from antagonizing countries in the Russian Federation in light of the Ukrainian crisis

Abstract

The paper investigates the effect of geopolitical risks in the Russian Federation on foreign direct investment (FDI) from antagonizing countries in light of the Ukrainian crisis. Using the Geopolitical Risk Index (GPR), the empirical analysis works on panel data on inward FDI from 90 countries from 2007 to 2020. The estimation method of RWLS concluded that rising GPR deters flows and stocks of FDI coming from antagonizing countries, which confirms that interstate relations and geopolitical factors impact the location decision of transnational corporations. On a sectoral level, we found a negative effect in the secondary and tertiary sectors, with a greater effect in the secondary one, which indicates that vertical FDI is more sensitive to geopolitical risks than horizontal ones. However, the impact of GPR on inward FDI in the primary sector is positive, which indicates that antagonizing countries seek to control energy and mining sectors in the Russian federation during geopolitical tension.