Is the country’s preparedness for epidemics and pandemics an FDI location factor? An empirical analysis using panel data
| Date | 14 November 2024 |
| Pages | 24-43 |
| DOI | https://doi.org/10.1108/JCEFTS-03-2024-0024 |
| Published date | 14 November 2024 |
| Author | Jihad Ait Soussane,Aomar Ibourk |
Is the country’s preparedness for
epidemics and pandemics an FDI
location factor? An empirical analysis
using panel data
Jihad Ait Soussane
Department of Economics and Management, University Ibn Tofail,
Kenitra, Morocco, and
Aomar Ibourk
Department of Economics, University of Cadi Ayyad, Marrakesh, Morocco and
Africa Institute for Research in Economics and Social Sciences (AIRESS),
Mohammed VI Polytechnic University, Benguerir, Morocco
Abstract
Purpose –This study aims to validate the hypothesis that a country’s preparedness for epidemics and
pandemics, as measured by the GHS Index, significantlyinfluences inward FDI inflows. By examining panel
data from 2019 to 2021, the research seeks to elucidate the impact of heightened epidemic and pandemic
preparedness on investment behavior, thereby highlighting the importance of health resilience and
preparednessin attracting foreign investment and fosteringeconomic growth and development.
Design/methodology/approach –The study uses panel dataspanning 181 countries from 2019 to 2021 and
uses logarithmic regression models to analyze the impact of a country’s preparedness for epidemics and
pandemics, as measured by the Global Health Security (GHS) Index, on inward Foreign Direct Investment
(FDI) inflows. Auxiliary variables including GDP, labor supply, openness rate, inflation rate and political
stability are incorporated. Robust weighted least squares estimation techniques are used to account for
potentialheterogeneity and panel data characteristics.
Findings –The studyreveals a consistent and statisticallysignificant positive relationshipbetween a country’s
GHS score and inward FDI, indicating that destinations with robust health systems are more attractive to
investors. Higher GHS scores correlate with reduced investment risk, improved business continuity during
healthcrises and enhanced health-careinfrastructure, leadingto a healthier and more productiveworkforce.
Research limitations/implications –While the study provides valuable insights into the relationship
between epidemic and pandemic preparedness and inward FDI inflows, several limitations exist. The analysis
relies on cross-sectional data from a relatively short timeframe (2019–2021), limiting the ability to capture long-
term effects. Additionally, the studyfocus eson the GHS Index as a measure of preparedness, overlooking other
potential determinants of FDI attractiveness. Future research could explore a broader range of health security
indicators and incorporate longer-termdata to provide a more comprehensive understanding of the relationship.
Originality/value –This study contributes to the literature by examining the previously underexplored
relationship between a country’s epidemic and pandemic preparedness, as measuredby the GHS Index and inward
FDI inflows. By using panel data analysis and robust econometric techniques, the research provides empirical
evidence supporting the positive impact of robust health systems on FDI attractiveness. The findings underscore the
importance of prioritizing public health initiatives and epidemic preparedness as integral components of attracting and
retaining foreign investment,thereby fostering economic resilience and sustainable development in host countries.
Keywords Epidemic preparedness, Global health security index, Foreign direct investment,
Economic resilience, Panel econometrics
Paper type Research paper
JCEFTS
18,1
24
Journalof Chinese Economic and
ForeignTrade Studies
Vol.18 No. 1, 2025
pp. 24-43
© Emerald Publishing Limited
1754-4408
DOI 10.1108/JCEFTS-03-2024-0024
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1754-4408.htm
1. Introduction
In 2020, the COVID-19 pandemic precipitated a sharp decline in global foreign direct
investment (FDI) inflows, plummeting by 35%, a magnitude tenfold greater than the
contraction observed in global GDP and fivefold more severe than the downturn inglobal
trade. FDI, being more susceptible to exogenous shocks, exhibited heightened volatility.
However, the pandemic’s impact on FDI transcended mere volatility, manifesting in both
depth and duration. This lack of resilience in FDI vis-à-vis pandemics can be attributed to
two primary factors: the immediate adverse effects of anti-COVID measures such as
lockdowns, production halts and border closures, which disproportionately impacted
FDI, and the subsequent indirect repercussions on human capital, affecting workforce
productivity and health-relatedcosts.
The substantial decline in FDI inflows has reverberated across international trade,
disrupting global value chains(GVCs) and precipitating a surge in inflation rates for goods to
historic highs. This outcome can be attributedto multinational enterprises (MNEs) wielding
significant control over international trade and GVCs, either directly or through their
subsidiaries. Consequently, FDI exerts a profound influenceon the global economy, shaping
international trade dynamics, societal well-being and host economies’prosperity through
employment generation,technology transfer and other ancillary benefits.
Thus, attracting FDI necessitates the formulation of efficient public policies that account for
myriad factors influencing MNE location decisions. Our study’s theoretical underpinning is
grounded in firm internationalization theories, notably the eclectic paradi gm Ownership, Location,
Internalization proposed by Dunning (1988), wherein the health system serves as a critical
location factor conducive to the internalization process. Dunning’s framework posits that a host
country’s human capital and health system comprise integral elements of its specific advantages,
facilitating the maximization of firm-specificbenefits and efficient internalization. Consequently,
the selection of FDI locations is instrumental in operationalizingthe internationalization process.
We introduce the environment–systems–policies model to elucidate the dynamics of
location factors, focusing on environmental factors pertinent to our research. These factors
encompass economic and human elementsdetermining FDI location choices and facilitating
the internationalization process. Within this framework, we emphasize the host country’s
public health systemas a pivotal determinant.
Despite the well-documented influence of public health-related factors such as life
expectancy (Alsan et al., 2006;Azemar and Desbordes, 2009;Talukdar and Parvez, 2017;
Immurana, 2020) and infectious deceases(Ghosh and Francesco, 2015;Asiedu et al., 2015;
Young,2005;Mcdonald and Roberts, 2006) on FDI location decisions, the role of epidemics
and pandemics preparedness as a determinant remains ignored. The literature has primarily
focused on life expectancyas aproxy for public health, overlookingthe broader implications
of a country’s preparedness for health crises on FDI attractiveness. Ourresearch addresses
this research gap by examining how a country’s readiness to manage epidemics and
pandemics influences FDI inflows, particularly in the context of the post-COVID-19
landscape, using the Global Health Security index (GHS) as a comprehensive indicator of a
country’sreadiness for epidemics and pandemics.
Given the imperative of orchestrating a transformative recovery in host countries post-
COVID-19, our study underscores the centrality of reevaluating prevailing economic
paradigms to capitalize on emergent opportunities. The pivotal role of FDI in reshaping host
economies underscores the ensuing competition among developing and emerging countries to
court FDI inflows by fortifying infrastructure, fostering a conducive business env ironment and
ensuring economic resilience to future health crises. Consequently, our paper aims to validate
the research hypothesis positing a country’s preparedness for epidemics and pandemics as a
Journal of
Chinese
Economic and
Foreign Trade
Studies
25
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