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Global And Diplomatic Political Risks And Foreign Direct Investment

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  • RODOLPHE DESBORDES

Abstract

This paper investigates whether multinational enterprises (MNEs) take into account both global and diplomatic political risks when investing abroad. Whereas global political risk is common to all foreign investors, diplomatic political risk is dyad-specific as it is related to the overall diplomatic climate between the home and host countries. The main result of this study is that both global and diplomatic political risks matter for U.S. MNEs investing in developing countries. Their required return on investment rises when the political risk faced by all foreign investors worsens or when diplomatic tensions arise between the United States and their host countries, presumably because in both cases uncertainty about future returns increases. Copyright 2009 Blackwell Publishing Ltd.

Suggested Citation

  • Rodolphe Desbordes, 2010. "Global And Diplomatic Political Risks And Foreign Direct Investment," Economics and Politics, Wiley Blackwell, vol. 22(1), pages 92-125, March.
  • Handle: RePEc:bla:ecopol:v:22:y:2010:i:1:p:92-125
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    Cited by:

    1. Mina Glambosky & Kim Gleason & Joan Wiggenhorn, 2011. "Joint ventures between US MNCs and foreign governments," International Journal of Managerial Finance, Emerald Group Publishing, vol. 7(3), pages 238-258, June.
    2. Kollias Christos & Papadamou Stephanos & Psarianos Iacovos, 2014. "Rogue State Behavior and Markets: the Financial Fallout of North Korean Nuclear Tests," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 20(2), pages 1-26, April.
    3. repec:eee:worbus:v:52:y:2017:i:6:p:760-768 is not listed on IDEAS
    4. Christos Kollias & Suzanna-Maria Paleologou, 2017. "The Globalization and Peace Nexus: Findings Using Two Composite Indices," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 131(3), pages 871-885, April.
    5. repec:spr:manint:v:58:y:2018:i:1:d:10.1007_s11575-017-0331-1 is not listed on IDEAS

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