{ Understanding the Relationship between FDI and Political Risk Honor’s Thesis, Dominican University of California Barowsky School of Business and the Political Science Department Meghan Nelson

Define the Variables Literature Review Data and Sample Size Method & Statistical Analysis Limitations & Further Research An Overlook:

“Foreign direct investment are the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of payments.” World Bank, 2014 Foreign Direct Investment FDI flows: measure of FDI over a period of time (usually one year) FDI stocks: measure of total accumulated FDI at a given point in time

(1) government stability; (2) socioeconomic conditions; (3) investment profile; (4) internal conflict; (5) external conflict; (6) corruption; (7) military in politics; (8) religious tensions; (9) law and order; (10) ethnic tensions; (11) democratic accountability; (12) bureaucracy quality Political Risk Other studies that use the ICRG’s political risk ratings: Howell (2014), Ritab et al. (2013), Lautier et al. (2012), Baek and Qian (2011), Iris and Schnitzer (2007), Claude et al. (1996) and Sethi and Luther (1986) Political Risk = International Country Risk Guide: Political Risk Index

Political Risk  FDI   Asiri and Hubail (2014); Ritab and Abdul (2013); Solomon and Ruiz (2012); Baek and Qian (2011); Ekpenyong and Umoren (2010); Lewandowski (1997); Kobrin (1979)   Growing interests in economic institutions affecting political institutions: Schroeder (2008); Addison and Murshed (2003)   Democratic Accountability: Feng (2014); Dutta and Roy (2009) (free press) FDI  Political Risk

Conceptualization & Logic 2012 was the first time developing countries exceeded developed countries’ FDI inflow, by $130 billion Globalization Development Changing Political Institutions

FDI Theoretical Framework Political Risk *Discrepancies from the Literature 1. Economic Stage of Development Baek and Qian (2011); Iris and Schnitzer (2007); Frynas and Mellahi (2003); Claude et al. (1996) 2. Regime Type

Data Collection and Sample Size

Relationship between political risk and FDI? Step 1: Graph Data

Step 2: Create a line of best fit A 1% increase in FDI inflow into China results in a 0.018% decrease in China’s political risk

Analysis for Countries’ Stages of Development

Analysis for Countries’ Regime Type

The greater the negative, the more politically stable the country is per 1% increase in FDI

Conclusions 1 Overall, as FDI flows increase, it has a politically stabilizing effect on the country. 2 FDI tends to be more politically stabilizing in developed countries than developing countries. 3 FDI tends to be more politically stabilizing for countries with full democracies than any other regime type.

  Lack of time and econometric knowledge   Plan to use regression analysis in the future   Plan to add more countries to get a larger N   Lack of available data   Test and assign a weight to the FDI component and add it in the ICRG’s political risk index (and/or other political risk indices) Limitations and Further Research

Thank you.