How does country risk matter for foreign direct investment?
Data(s) |
01/03/2011
01/03/2011
01/02/2011
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Resumo |
In this paper, we aim to identify the political and financial risk components that matter most for the activities of multinational corporations. Our paper is the first paper to comprehensively examine the impact of various components of not only political risk but also financial risk on inward FDI, from both long-run and short-run perspectives. Using a sample of 93 countries (including 60 developing countries) for the period 1985-2007, we find that among the political risk components, government stability, socioeconomic conditions, investment profile, internal conflict, external conflict, corruption, religious tensions, democratic accountability, and ethnic tensions have a close association with FDI flows. In particular, socioeconomic conditions, investment profile, and external conflict appear to be the most influential components of political risk in attracting foreign investment. Among the financial risk components, only exchange rate stability yields statistically significant positive coefficients when estimated only for developing countries. In contrast, current account as a percentage of exports of goods and services, foreign debt as a percentage of GDP, net international liquidity as the number of months of import cover, and current account as a percentage of GDP yield negative coefficients in some specifications. Thus, multinationals do not seem to consider seriously the financial risk of the host country. |
Identificador |
IDE Discussion Paper. No. 281 2011. 2 http://hdl.handle.net/2344/946 281 |
Idioma(s) |
en eng |
Publicador |
Institute of Developing Economies, JETRO 日本貿易振興機構アジア経済研究所 |
Palavras-Chave | #Developing countries #Developed countries #Foreign investments #FDI #International business enterprises #Industrial management #Country risk #Political risk #Financial risk #Institution #MNEs #338.92 #C Developing countries 発展途上国 #D Developed countries 先進国 #G World,others #F21 - International Investment; #F23 - Multinational Firms; International Business #D22 - Firm Behavior: Empirical Analysis |
Tipo |
Working Paper Technical Report |