ICRG International Country Risk Guide Essay Example

& Mater (2005), exporting helps avoid being exploited by foreign firms interested in taking advantage of local markets. Furthermore, the availability or abundance of natural resources plays an important role in attracting FDI as confirmed by Peepholes & van deer People (2010). Jenkins and Thomas (2002) suggest that investors seeking resources often establish subsidiaries abroad for a more stable or cheaper supply of inputs like raw materials and energy sources. Additionally, economies with natural resource endowments may experience increased FED flows when oil prices rise. Political stability also plays a significant role in attracting foreign investment according to Beak & Asian (2011) and Buses & Heftier (2007).According to Banner (2007) and IL (2006), the political stability of a country is influenced by various factors such as the type of regime, government stability, relationship between political groups, and democratic institutions. Mooneye (2003) notes that democratic countries tend to attract more FED due to their regimes upholding civil liberties, property rights, and rule of law which create favorable conditions for FED flows. However, Daniel & Marin (2006); Hookah & Muezzin (2011) argue that countries lacking political and institutional stability pose high risks that can deter FED flows; three types of political risks are associated with foreign investments - nationalization or expropriation of assets, contract breaches, policy instability; arbitrary regulation related to FED policies can also harm host economies in the long term. Additionally, foreign investors prefer economies with well-developed infrastructure like roads, transportation systems, water supply, electrical power and telecommunication services such as phone,fax and internet since poor infrastructure increases business costs reducing investment profitability(Ongoing 2001).Oinks & Thomas (2002) state that countries lacking proper infrastructure usually incur

higher production expenses compared to those with established infrastructure. Thus, FED is more likely to show a preference for nations possessing superior infrastructure.