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Does Contract Risk Impede Foreign Direct Investment?

  • Peter Egger
  • Hannes Winner

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.

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Article provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.

Volume (Year): 139 (2003)
Issue (Month): II (June)
Pages: 155-172

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Handle: RePEc:ses:arsjes:2003-ii-2
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