@techreport{oai:ir.ide.go.jp:00037891,
 author = {Hayakawa, Kazunobu and Kimura, Fukunari and Lee, Hyun-Hoon},
 month = {Feb},
 note = {application/pdf, IDP000281_001, 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.},
 title = {How does country risk matter for foreign direct investment?},
 year = {2011}
}