Political risk and the institutional environment for foreign direct investment in Latin America: an empirical analysis with a case study on Mexico
The intensification of capital flows is an important characteristic of globalization. Attracting foreign direct investment is a viable way of ensuring the external financing of developing countries. Foreign direct investment flows, in turn, are determined by the decisions of multinational enterprises. One important determinant of investment of potential host countries. Political risks like expropriations, riots, revolutions or civil wars are important obstacles for investment. This book empirically analyzes the impact of political risks on foreign direct investment flows to Latin American countries. A case study of Mexico and its policy towards foreign investors offers further empirical evidence for the importance of the political environment for investment decisions of multinationals.
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Evolution of Public and Private Capital Transfers
Risk in the Theory of lnvestment
Dynamics of the capital stock
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aggregate political risk analyzed argues assets capital stock changes Chapter correlation corruption country risk data by PRS democracies democratic determinants of FDl developing countries econometric effects empirical evidence enforcement environment expropriation FDl flows Figure firms flows to Mexico foreign investors Freedom House future governmental higher host country impact implies important incoming FDl influence institutions investment decisions irreversible judiciary Latin American Latin American countries legislation levels of political limited ln addition lndex lnstead lnternational lnvestment macroeconomic measures Mexican political MNEs NAFTA OECD opportunity costs overview p-values panel analysis paragraph party POLCON political constraints political risk indicators political system potential president problem production profits property rights PRS Group 2003 reforms regime risk factors risk mitigation rule of law saddle path sector social capital societal risk Source stability strategy theoretical transaction costs uncertainty veto players World Bank