FOREIGN DIRECT INVESTMENT UNDER WAR RISKS: THE EXPERIENCE OF UKRAINE AND OTHER POST-CONFLICT ECONOMIES

Abstract

The article examines how war risks reshape the inflow of foreign direct investment into economies exposed to large-scale armed conflict, focusing on Ukraine and drawing on the experience of other economies that have gone through wars and periods of post-conflict recovery. The relevance of the study stems from the unprecedented scale of destruction caused by the full-scale invasion and from the fact that the officially recorded recovery of investment inflows conceals a deep structural problem, namely the near absence of new foreign investors and the dominance of reinvested earnings generated under capital controls. Understanding this problem is essential for the design of public policy, because conventional instruments for improving the investment climate address regulatory and institutional barriers, while the binding constraint for investors during wartime is a category of risk that private insurance markets refuse to cover. The purpose of the article is to identify the channels through which war risks transform foreign direct investment flows, to systematize the multilateral and national instruments of war risk insurance and loss compensation that have emerged in Ukraine, and to substantiate policy directions for restoring the investment function of the economy during the war and in the post-war period. The methodological basis of the research combines statistical analysis of balance-of-payments data, institutional analysis of the legal acts establishing insurance and compensation mechanisms, and a comparative case study of economies that faced armed conflicts of different intensity and duration. Particular attention is paid to the design of risk-sharing arrangements between the state, international financial institutions, donors and private reinsurers, to the sequencing of security guarantees and institutional reforms, and to the lessons that the compensation systems of other countries offer for building a permanent national institution of war risk insurance in Ukraine. The findings of the article are relevant for policymakers, international financial institutions and researchers of international capital movements in fragile and conflict-affected settings.