Akademik Veri Yönetim Sistemi
Turkish Economic Association, the 2nd Spring Meeting of TEA (SMTEA2026) , İstanbul, Türkiye, 7 - 09 Mayıs 2026, ss.1-3, (Özet Bildiri)
Geopolitical risks refer to uncertainties arising from political tensions, threats of war, terrorism, diplomatic crises, and energy security concerns. In the contemporary financial system, such risks function not only as country-specific shocks but also as global risk factors affecting international capital flows. Increased geopolitical risk heightens investors' risk perceptions, increasing uncertainty about expected returns. This dynamic is particularly pronounced in emerging economies, which are more susceptible to fluctuations in portfolio investments due to their relatively fragile financial structures.
This study investigates the impact of geopolitical risk on foreign portfolio investments in emerging market economies using the financial attraction model. The model is estimated using total foreign portfolio investments of 97 countries between 2001 and 2024. Considering the portfolio diversification hypothesis, the model is also estimated for equity and debt portfolio investments. To decompose the impact of geopolitical risk on portfolio preference and actual portfolio flows, the Heckman Selection Model is used in the estimation of the financial attraction model.
The findings indicate that geopolitical risk significantly reduces foreign portfolio investments, with investors tending to avoid politically uncertain environments. The negative impact is stronger for debt instruments compared to equities, reflecting concerns about sovereign debt repayment capacity and rising risk premiums. Overall, increased geopolitical tensions affect the distribution of international portfolio investments across countries, highlighting the strategic importance of geopolitical stability for sustaining international financial flows.