Risk dimensions, risk clusters, and foreign direct investments in developing countries

Journal article

Emeka, O., Hassan, M., Rashid, M., Prabu, Darniya and Sabit, Ahmed 2022. Risk dimensions, risk clusters, and foreign direct investments in developing countries. International Review of Economics & Finance. 82, pp. 636-649. https://doi.org/10.1016/j.iref.2022.07.013
AuthorsEmeka, O., Hassan, M., Rashid, M., Prabu, Darniya and Sabit, Ahmed
AbstractWe analyse four risk dimensions of inward FDI alongside economic growth for forty-eight developing countries for the period 2000–2019 using Fixed Effects, and System GMM models. After controlling for potential endogeneity issues, the results show that economic growth and currency rate have robust positive effect on FDI inflows, whereas inflation rate and financial risk have negative impacts. Political risk both at the contemporaneous and lagged terms had inconsistent results. The nexus between FDI and risk dimensions emends significantly with the risk cluster analysis that finds a strong interplay among financial and currency risks having economic growth in the centre. Results suggest that countries with stable economic growth can cover for an extent (‘U’ shaped relationship) of inflation, currency, and financial risks. The worse possible countries are the ones with unstable political condition, which cannot be mitigated by higher economic growth. We propose a two-layer FDI decision typology that includes country-specific endogenous and non-country specific exogenous factors in primary and secondary layers, respectively. Using a location-risk typology, we relate our discussions on the locational advantage from the eclectic paradigm with the approaches to risk management in international investment.
KeywordsFDI inflows; Developing countries; FDI decision typology; Locational advantage
Year2022
JournalInternational Review of Economics & Finance
Journal citation82, pp. 636-649
PublisherElsevier
ISSN1059-0560
Digital Object Identifier (DOI)https://doi.org/10.1016/j.iref.2022.07.013
Official URLhttps://doi.org/10.1016/j.iref.2022.07.013
Publication dates
Online11 Aug 2022
Publication process dates
Accepted25 Jul 2022
Deposited04 Aug 2022
Accepted author manuscript
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Output statusPublished
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