An Evaluation of Foreign Direct Investment in Emerging Economies from the Perspective of Systematic Risks
An Evaluation of Foreign Direct Investment in Emerging Economies from the Perspective of Systematic Risks

Summary/Abstract: The expansion of financial liberalization and the intensification of global capital mobility have enhanced the strategic role of foreign direct investment (FDI) as a fundamental driver of sustainable economic growth, particularly in emerging economies. Despite the recognized importance of FDI, investment decisions remain highly sensitive to systematic risk factors, such as political risk, interest rates, inflation, and exchange rates which cannot be eliminated through portfolio diversification. Although a substantial body of literature investigates the relationship between macroeconomic risk indicators and FDI inflows, empirical evidence remains fragmented and inconclusive, with most studies examining these determinants separately rather than within an integrated analytical framework. Addressing this gap, the present study aims to analyze the joint impact of key systematic risk elements on FDI inflows. The empirical analysis covers BRICS (Brazil, Russia, India, China, South Africa) and MIST (Mexico, Indonesia, South Korea, Türkiye) countries over the period 2007–2022 and employs a panel data methodology to account for both cross-sectional heterogeneity and time dynamics. The findings reveal that political risk (measured inversely) and interest rates exert a statistically significant and positive influence on FDI inflows, whereas inflation and exchange rate variables do not demonstrate statistically robust effects. The positive association between interest rates and FDI diverges from studies emphasizing the cost-of-capital channel, suggesting instead that foreign investors with access to external financing may benefit from high domestic interest environments by gaining competitive advantages over local firms. Furthermore, the significance of political risk underscores the importance of institutional credibility and policy predictability in attracting long-term capital. By incorporating multiple systematic risk indicators into a unified econometric specification, the study contributes to the ongoing debate and offers policy implications for emerging economies seeking to enhance their investment climate.

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