Does Contract Risk Impede Foreign Direct Investment?
Schweizerische Zeitschrift für Volkswirtschaft und Statistik / Revue Suisse d'Economie politique et de Statistique / Swiss Journal of Economics and Statistics, Volume 139, Issue 2, 2003, Pages 155-172
Keywords
Contract risk, Corruption, Foreign direct investment, Panel econometrics
Abstract
This paper analyzes the impact of contract-related risk factors on inward foreign direct investment. We presume that risk related determinants enter directly the cost function of multinationals. For a sample of 50 developed and less developed countries and the time period 1985-1997 we find a clear negative relationship between contract risk and FDI. Further, a simulation analysis reveals that the observed change in contract risk has equalized the international distribution of inward foreign direct investment.