Analele Universităţii Constantin Brâncuşi din Târgu Jiu : Seria Economie (Jun 2016)
RISK AND THE FOREIGN DIRECT INVESTMENT - SYNTHETIC APPROACH
Abstract
As part of the international economics flows, FDI always puts a mark on the economic development of a country. The internationalization of a company by investments involves a great many risks, from the lowest to the highest level of involvement. On the basis of these considerations one can assess that the country risk is one of the most important pillars that support the process of internationalization of a company by means of foreign direct investments. Broadly sepaking, country risk is an important component of the overall risk of trading on international levels. In other terms it can be seen as the likelihood of losses resulting from a series of macroeconomic (GDP decline on the long run, inflation increase, economic crises, etc.), social (conflicts between social classes, civil wars, riots, etc.) and political events (wars, territorial claims, conflicts of interest, etc.). In order to identify the main country risk factors that influence the decision of corporations to invest abroad, AT Kearney (2004) performed an extensive survery among multinational corporations. Those risk factors that were most frequently mentioned included government regulations (64%), country financial risk (60%), currency or interest rate volatility (51%) and political and social disturbance (46%).[11] The purpose of this article is to highlight a number of important factors that may affect the realization of a foreign direct investment, in other terms to influence "go-no-go" decisions, that is to invest or not to invest. Also, through the analysis of the influence of country risk over FDI one aims at evaluating the relationship between risk and potential gain resulting from conducting the respective business. The purpose of this article is an attempt to identify and develop aspects that outline a number of risk factors of influence over FDI.
