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AN ANALYSIS ON POLITICAL RISKS AND THE FLOW OF FOREIGN DIRECT INVESTMENT IN DEVELOPING AND INDUSTRIALIZED ECONOMIES

AN ANALYSIS ON POLITICAL RISKS AND THE FLOW OF FOREIGN DIRECT INVESTMENT IN DEVELOPING AND... Do political risks discourage Foreign Direct Investment (FDI) in both developing and developed economies in a similar manner? In this paper, we examine whether and in what manner political risk affects FDI and compare its different effects in developing and developed economies. Using the 12 category Political Risk Index compiled by the International Country Risk Guide (ICRG), we find the following: First, political risk is a significant determinant of FDI in both industrialized and developing nations. Second, not all aspects of political risk affect FDI stocks in industrialized and developing countries in the same way. When we compare the effects of different political risk component, we find that since the 9/11 attacks, political risks have become more important and significant determinants of FDI flows, especially in industrialized nations. JEL Classification: D81, F59, O19 Keywords: Foreign Direct Investment, political risks, multinational corporations, developing nations, industrialized economy http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Economics, Management, and Financial Markets Addleton Academic Publishers

AN ANALYSIS ON POLITICAL RISKS AND THE FLOW OF FOREIGN DIRECT INVESTMENT IN DEVELOPING AND INDUSTRIALIZED ECONOMIES

Economics, Management, and Financial Markets , Volume 6 (4): 60-91 – Jan 1, 2012

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Publisher
Addleton Academic Publishers
Copyright
© 2009 Addleton Academic Publishers
ISSN
1842-3191
eISSN
1938-212X
Publisher site
See Article on Publisher Site

Abstract

Do political risks discourage Foreign Direct Investment (FDI) in both developing and developed economies in a similar manner? In this paper, we examine whether and in what manner political risk affects FDI and compare its different effects in developing and developed economies. Using the 12 category Political Risk Index compiled by the International Country Risk Guide (ICRG), we find the following: First, political risk is a significant determinant of FDI in both industrialized and developing nations. Second, not all aspects of political risk affect FDI stocks in industrialized and developing countries in the same way. When we compare the effects of different political risk component, we find that since the 9/11 attacks, political risks have become more important and significant determinants of FDI flows, especially in industrialized nations. JEL Classification: D81, F59, O19 Keywords: Foreign Direct Investment, political risks, multinational corporations, developing nations, industrialized economy

Journal

Economics, Management, and Financial MarketsAddleton Academic Publishers

Published: Jan 1, 2012

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