Impact of the Global COVID-19 Pandemic on FDI: Evidence from a Small Open Economy

Mauritius - 23 August 2022

This study sets out to empirically examine the effect of the outbreak of the global COVID-19 pandemic on the foreign direct investment flows of a small open economy, Mauritius. A preliminary analysis of the monthly gross direct investment flows data clearly shows that in general, the series departed from their original trends after the outbreak of the pandemic. As such, we employ the newly developed Bayesian structural time series (BSTS) framework for causal analysis to determine the initial impact of the pandemic on the gross direct investment flows of the country. The results indicate that the outbreak of the pandemic negatively affected investments coming from South Africa, Switzerland, Belgium, China and Reunion and those in the “Real Estate Activities” sector. Surprisingly, a considerable increase was observed for the “Manufacturing” sector. Our findings also reveal that in the long run, gross direct investment flows from some countries and in some sectors will surely be influenced by the pandemic although this was not obvious at the time of the investigation. However, this will be highly dependent upon the measures taken by the country and worldwide to contain the spread of the pandemic.

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