The Effect of country risk on foreign direct investment: Evidence from Egypt

Abstract

This paper examines the effect of country risk on Foreign Direct Investment (FDI) in Egypt during the years 2005-2015. We employ multiple regression analysis, to test the relationship among the selected variables that drive foreign direct investment flows to Egypt. FDI has always been an interesting topic for research; nevertheless, to the authors' knowledge, the impact of country risk on FDI has not been examined before in Egypt. Since FDI is a notable source of foreign currency income to the Egyptian economy, it becomes inevitable to study the variables that affect the flow of FDI in relevance to the economic outlook in general and country risk in specific. The effect of country risk on FDI could significantly affect economic measurements such as economic growth and required rate of return. Our results show that economic risk measurements have the most significant impact on foreign direct investments inflows to Egypt, while financial risk measurements have no significance. Moreover, political risk is associated with foreign direct investment.

Does Country Risk Influence Foreign Direct Investment Inflows? A Case of the Visegrád Four

“…In particular, the result suggested that a 1% increase in the economic risk index score (which implies a decrease in economic risk) enhanced the FDI inflows by 0.919%, and vice versa. This result corroborated previous findings by Salehnia et al (2019) and Salem and Younis (2021), which showed that economic risk has a powerful effect on FDI inflows. The result further stressed the importance of maintaining high GDP levels, as well as optimal levels of the inflation rate, budget balance and current account for investment inflows to be enhanced in the V4.…”

“…The magnitudes of real GDP in the models suggested that it exerted a strong positive elastic impact on FDI in the V4. This research outcome is consistent with several studies that identified market size as a strong driver of FDI (Demirhan and Masca 2008;Khan and Akbar 2013;Meyer and Habanabakize 2018;Salem and Younis 2021;Wach and Wojciechowski 2016). The coefficient of natural resources was insignificant across the four models.…”

“…The empirical results from their estimation showed that all three types of risk negatively affect the FDI, with the economic risk being the most influential of the three. This result was corroborated by a recent study of a MENA country, namely, Egypt, for the period 2005-2015 by Salem and Younis (2021). They found both economic and political risks as determinants of FDI in the country, with economic risk being the more influential of the pair.…”

“…Each of these factors is either a component of country risk or is somewhat connected to it. Meanwhile, it is noteworthy that none of the previous studies on the impact of country risk on FDI inflows (Hammache and Chebini 2017;Khan and Akbar 2013;Nassour et al 2020;Rodríguez 2016;Salem and Younis 2021;Topal and Gul 2016) focussed on the V4. Thus, the V4 deserves a separate study to determine the impact of country risk and each of its components on the FDI inflows into their economies.…”

Foreign Direct Investment dan Risiko Politik di ASEAN

“…Menurut hasil penelitiannya, negara dengan risiko politik yang tinggi dapat membuat investor kehilangan minatnya untuk berinvestasi dikarenakan investor khawatir akan dihadapkan oleh risiko kerugian yang dapat terjadi di negara tujuan. Pendapat yang berbeda dikemukakan oleh Dwinitasari & Sulasmiyati (2017) dan Salem & Younis, (2021), yakni risiko politik tidak memiliki pengaruh yang signifikan terhadap FDI. Hal ini disebabkan banyaknya faktor lain yang menjadi prioritas bagi investor untuk menanamkan investasinya seperti misalnya tersedianya sumber daya alam, sumber daya manusia, dan faktor -faktor lain yang dibutuhkan oleh investor.…”