The Effect of Country Default Risk on Foreign Direct Investment
AbstractIn this paper we use the structural credit risk methodology of Merton (1974) to estimate country default risk as the country financial risk premium for eight of the largest Latin American economies - Argentina, Bolivia, Brazil, Chile, Colombia, Mexico, Peru and Venezuela - from 1986 to 2000. We test whether and to what extent it affects the amount of foreign direct investment (FDI). We find that the lagged second difference of the financial risk premium is a significant explanatory variable that is robust with respect to the other explanatory variables, including a standard measure of country/political risk, as well as with respect to the individual countries.
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Bibliographic InfoArticle provided by Camera di Commercio di Genova in its journal Economia Internatzionale / International Economics.
Volume (Year): 62 (2009)
Issue (Month): 3 ()
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Foreign Direct Investment; Country Default Risk;
Find related papers by JEL classification:
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- F30 - International Economics - - International Finance - - - General
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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