Risk and Foreign Direct Investment

Abstract

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The national bioenergy investment model: Technical documentation

“…The question the model seeks to answer is, which of a set of business models are likely to receive domestic investment funds or FDI, and in what quantities? In contrast, most research on FDI focuses on other factors, including: FDI flows to countries (rather than projects) (Asiedu 2002, Sethi et al 2002, Akinkugbe 2003, Ahlquist 2006, Blonigen et al 2007, Busse and Hefeker 2007, Jinjarak 2007, Lim 2008, Dippenaar 2009); mode of entry (Kogut and Nath 1988, Hennart and Park 1993, Li and Filer 2007, Li and Rugman 2007, Nocke and Yeaple 2007, Asmussen et al 2009); the impact of FDI on host countries (Jenkins 2006, Adams, 2009, Chaudhuri 2010; and the decision making process within a particular firm (Dahlquist and Robertsson 2001, Moosa 2002, White and Fan 2006, Carlesi et al 2007, Dippenaar 2009, Klier 2009, Kinda 2010. A survey of the literature on FDI identified one paper assessing the potential of projects within a portfolio to attract foreign investment (Li and Sherali 2003); however, the methodology in that paper requires detailed knowledge of the projects and is unsuitable for a simulation model.…”

“…The NBIM design draws upon recommendations made to the managers of MNEs (Solnik 2000, Moosa 2002, White and Fan 2006, Klier 2009) and the practices used by financial officers (Graham and Harvey 2001). In practice, MNE management might examine a variety of metrics for a project -net present value, adjusted present values, internal rate of return -and consider a variety of factors, including the firm's debt position, the size of the planned investment, its strategic importance and the strategies of competing firms, and risks at the industry, country, firm, and project level.…”

“…In theory, investors can remove non-systematic risk systematic risk (Solnik 2000). However, in practice, and in diversification are limited and firms routinely include non-s (White and Fan 2006 , the 'profitability index', is a standard metric for deciding on the profitability of a potential investment (Moosa 2002).…”

“…In theory, investors can remove non-systematic risk systematic risk (Solnik 2000). However, in practice, and in diversification are limited and firms routinely include non-s (White and Fan 2006 …”

“…In theory, investors can remove non-systematic risk through diversification, leaving only systematic risk (Solnik 2000). However, in practice, and in particular for FDI, opportunities for diversification are limited and firms routinely include non-systematic risk in their evaluation of projects (White and Fan 2006). Accordingly, in the model, investors expect a riskadjusted rate of return [r E,i ] -the equity cost of capital -for business model i where…”