Political Risk as a Determinant of Southern European FDI in Neighboring Developing Countries

Alfredo Jiménez

Emerging Markets Finance and Trade, 2011, vol. 47, issue 4, 59-74

Abstract: This study analyzes foreign direct investment flows from southern European countries to one of two nearby developing regions: north African countries and new European Union member states in central and eastern Europe. As expected, good economic perspectives, human capital, and development of infrastructures attract greater investment flows. However, greater levels of political risk, measured through scales of political discretion, corruption, and economic freedom, do also attract higher inflows. Despite the fact that one might expect global flows to fall as a consequence of political risk, those from the countries in the sample increase, because they come from firms that are searching for a market niche where they can take advantage of their political capabilities.

Keywords: central and eastern Europe; corruption; developing countries; foreign direct investment; multinational enterprise; North Africa; panel data; political risk (search for similar items in EconPapers)
Date: 2011
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