by Aamer Husain
Abstract
This paper examines whether geopolitical tensions affect bilateral foreign direct investment (FDI). Using global news event data, I construct a novel dyadic measure of geopolitical distance and estimate a panel model with country-year and dyad fixed effects across 39,700 dyad-year observations from 2016 to 2023. Geopolitical distance reduces FDI positions by 13.5% in the cross-section, but within-pair variation has little explanatory power, suggesting existing relationships are resilient to geopolitical fluctuations. Geopolitical alignment shapes whether countries invest in each other, but not the magnitude once a relationship exists. Subsample analysis replicates this null, suggesting decoupling is stickier than current narratives imply.
Craig Burnside, Faculty Advisor
Sebastian James, Faculty Advisor
