Introduction

This book is an exploration of the way in which risk influences the process of decision making relating to foreign direct investment. Its initial premise is that country risk is, and should be, a major deterrent to such investment. Since FDI is of increasing significance for the promotion of economic development in countries with a low level of economic development and for the maintenance of continuing growth in developed countries, it is important to understand how risk of various types constrains the flow of such investment. FDI is much more important than trade in delivering goods and services abroad (UNCTAD 2003: xvi). In 2002 global sales by multilateral enterprises reached $US18 trillion, as compared with world exports of $US8 trillion. In the same year the value added by foreign affiliates of multinational companies reached $US3.4 trillion, about one tenth of world GDP, twice the level of 1982. Because risk is a significant determinant of foreign investment there is a need for the relevant decision makers to identify, estimate and assess the relevant risk and to respond to it (Baird and Thomas 1985: 234).