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Valuation of Foreign Direct Investment in the Presence of Political Risk

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Abstract

Investments in a country are subject to risks stemming from the same political events and government policies. Therefore it is possible to construct a portfolio which mimics the income profile of a particular FDI project using assets with readily observable prices. This paper provides a general risk replication model for valuing FDI projects in the presence of political risk.

Suggested Citation

  • Lee, B.C. & Powell, J.G., 1999. "Valuation of Foreign Direct Investment in the Presence of Political Risk," Economics Working Papers WP99-08, School of Economics, University of Wollongong, NSW, Australia.
    • Handle: RePEc:uow:depec1:wp99-8
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    File URL: http://www.uow.edu.au/content/groups/public/@web/@commerce/@econ/documents/doc/uow012255.pdf
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    References listed on IDEAS

    as
    1. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    2. Eaton, Jonathan & Gersovitz, Mark, 1984. "A Theory of Expropriation and Deviations from Perfect Capital Mobility," Economic Journal, Royal Economic Society, vol. 94(373), pages 16-40, March.
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    Keywords

    investments; foreign direct investment; political risk;
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