The Relationship between Risk and Foreign Direct Investment in Selected Developing Countries (Dynamic Panel Data Approach)

Foreign Direct Investment (FDI) is one of the most stable sources of foreign financing that not only does not have foreign borrowing problems, but also is one of important factors of economic growth and development, the removal of the investment-saving gap, the transfer of technology and new managerial methods. Foreign investors prefer to invest in their country if they expect high and stable returns on foreign investment. It depends on many factors and, most importantly, on stability. Therefore, this study examines the effects of three types of economic, financial, and political risks on FDIs for the period 2000-2014 for 17 developing countries and uses Panel ECM through the FMOLS method. The results show the long-run negative and significant effect of all three financial, economic, and political risks on FDI. Political and financial risks do not have a significant effect on foreign direct investment in the short term. The coefficient of trade openness variables, inflation rate and real GDP are positive and significant and the real exchange rate coefficient is negative and significant.