FRAGMENTATION OF INTERNATIONAL FDI FLOWS IN THE CONTEXT OF POST-WAR RECOVERY OF UKRAINE’S ECONOMY

Abstract

This article analyzes how the fragmentation of international economic relations, driven by escalating geopolitical frictions, reshapes cross-border capital - most visibly foreign direct investment (FDI). We show that the reconfiguration of the global investment architecture creates new fault lines in capital mobility and changes the conditions under which post-conflict economies attract private finance. Methodologically, the study builds a cluster-based country map combining geopolitical alignment with revealed economic behaviour (participation in or avoidance of sanctions against the Russian Federation). Using IMF CDIS bilateral position data and net outward indicators aggregated by clusters, we trace intra-cluster concentration and inter-cluster reallocation across three sub-periods, avoiding single-year level comparisons the data do not support. Findings indicate a marked intensification of within-cluster concentration and a concurrent slowdown of between-cluster expansion. In this setting, the first cluster becomes the main locus of investment activity; the third turns inward and reduces exposure to the first; the second, though nominally neutral, tilts toward the first while links with the third grow marginal. Late-period evidence also shows a deceleration of the first and third clusters’ expansion into the second, consistent with a shift toward risk-aware, alignment-congruent allocation. For Ukraine, these patterns shape priorities for mobilizing private capital for post-war reconstruction. As a member of the first cluster, Ukraine should prioritise partners within this group, where concentration and institutional predictability favour stable, long-term commitments. Countries of the second cluster can provide complementary, project-specific funding. By contrast, offers from the third cluster warrant heightened caution given policy unpredictability, enforceability concerns, sanctions-compliance risk, and a greater likelihood of abrupt reversals under geopolitical stress. Recognizing this fragmented landscape clarifies realistic opportunities and constraints for channeling FDI into the Ukrainian economy during post-war recovery and reconstruction.