Being knowledgeable about country risk can force organizations to conduct more thorough due diligence before requesting a board vote.
Daniel Wagner is CEO of Country Risk Solutions, a cross-border risk advisory firm, and author of the book Managing Country Risk.
All thirteen country risks are negatively correlated with FDI, and eleven of the country risks show results that are statistically significant at 1 percent level p<.
Similarly, Figure 1 is a graphic illustration of the different correlations between thirteen types of country risks, plus Overall risk, and FDI (inward foreign direct investment)
In the case of Latin American countries, the country risks that have the highest correlation to inward FDI are Labor Market risk and Currency risk; which is consistent with the traditional motivations for MNE investments in Latin America.
This study aims to propose a simple tool to show the differences in the correlations between various types of country risk and FDI inflow; which would serve as a proxy for determining the drivers of MNEs to invest into a specific region or country.
Being able to see a snapshot of all the major FDI drivers and being able to compare that analysis, functions as an equalizer that allows comparing different country risk profiles, highlight differences and gaps that may be hindering a country's attractiveness for FDI inflows.
Ultimately, this paper provides a simple tool to bring visibility to country risk profiles.
Based on this, the first goal is to confirm via empirical evidence that overall country risk is negatively correlated to FDI into Latin America; since the data utilized is from Latin American countries.
H3: There are differences in the degree of impact of types of Country Risk on Inward FDI to Latin America.
The main proposition of this research paper is that an understanding of the differences in the correlations between different types of country risk and FDI inflow can serve as a proxy for determining the drivers of MNEs to invest into a specific region or country.
Given the competing interests that may influence an internal risk management team, a better solution is to look outside of the company's country risk
management function (if it has one) and insist that either the company hire an independent third party assessor or, ideally, do so themselves.