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Does Contract Risk Impede Foreign Direct Investment?

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  • Peter Egger
  • Hannes Winner

Abstract

This paper analyzes the impact of contract-related risk factors on inward foreign direct investment. We presume that risk related determinants enter directly the cost function of multinationals. For a sample of 50 developed and less developed countries and the time period 1985-1997 we find a clear negative relationship between contract risk and FDI. Further, a simulation analysis reveals that the observed change in contract risk has equalized the international distribution of inward foreign direct investment.

Suggested Citation

  • Peter Egger & Hannes Winner, 2003. "Does Contract Risk Impede Foreign Direct Investment?," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 139(II), pages 155-172, June.
  • Handle: RePEc:ses:arsjes:2003-ii-2
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Vadlamannati, Krishna Chaitanya, 2009. "Growth effects of foreign direct investment and economic policy reforms in Latin America," MPRA Paper 14133, University Library of Munich, Germany.
    2. Egger, Peter & Winner, Hannes, 2005. "Evidence on corruption as an incentive for foreign direct investment," European Journal of Political Economy, Elsevier, vol. 21(4), pages 932-952, December.
    3. Nadia Doytch & Mesut Eren, 2012. "Institutional Determinants of Sectoral FDI in Eastern European and Central Asian Countries: The Role of Investment Climate and Democracy," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(S4), pages 14-32, November.
    4. Vadlamannati, Krishna Chaitanya, 2009. "Growth effects of U.S. FDI in 64 developing economies, 1980 – 2007: The role of absoptive capabilities," MPRA Paper 14709, University Library of Munich, Germany.
    5. repec:eur:ejmsjr:202 is not listed on IDEAS
    6. Jean-Francois Wen & Fatih Yilmaz, "undated". "Contract Stability and Private Infrastructure Investment," Working Papers 2010-26, Department of Economics, University of Calgary, revised 14 Oct 2010.
    7. Nadia Doytch & Mesut Eren, 2012. "Institutional Determinants of Sectoral FDI in Eastern European and Central Asian Countries: The Role of Investment Climate and Democracy," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 48(S4), pages 14-32, November.

    More about this item

    Keywords

    Contract risk; Corruption; Foreign direct investment; Panel econometrics;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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