Political risk and multinational enterprises: An empirical analysis of the environmental determinants in developing countries.

Abstract

The purpose of this study is twofold: First, to develop an analytical framework for understanding the sources and the process of foreign enterprises' political risk exposure in developing countries. Second, to test the empirical validity of the proposed framework on an ex-post cross-sectional basis, utilizing two reciprocal points of view, - i.e. the host country's and the foreign investors'. The ultimate objective of the quantitative analysis, is to assess the possibility of making effective predictions about the national propensity to expropriate, based on certain economico-political characteristics of the host country. The research findings suggest, that the extent of foreign investors' political risk exposure is determined by the dynamic configuration of certain environmental attributes, rather than by any single one of them. The stability of the political environment, the state of the general economic situation and, to a lesser extent, the host country's bargaining position with Western sources of investment capital appear to be not only sufficient to differentiate between expropriating and non-expropriating countries, but also capable of predicting a nation's political risk potential. In spite, however, of the steadily increasing likelihood for strategic surprises, this research's findings tend to indicate that, in fact, foreign investors' assessments of the relevant business environments, as they are expressed by their direct foreign investment and insurance against political risk decisions, are incoherent and rather ambiguous.

Date of Award	1979
Original language	English
Awarding Institution	University of Bath