Influence of Host Countries' Country Risk Factors on Foreign Direct Investment Decision Making Process

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This paper discusses the determinant factors for Japanese foreign direct investment (FDI). The analysis in particular focuses whether Japanese firms consider the host countries' country risk elements including the economic vulnerabilities, social fragilities and political instabilities on the decision making process relating with location selection for new overseas investment.This paper analyzes the determinant factors among home country's macroeconomic variables which push firms invest abroad. The second analysis concentrates on corporate financial performance whether it would play a critical role for the firms' FDI decision making. The third analysis focuses on the relationship between external trade and Japan's FDI outflow, by industrial category and by host country. The forth analysis discloses the relationship between various forms of international capital flows including Japanese FDI and host country's country risk rating scores. In fifth, implementing each component of overall c … More ountry risk rating (composed of 15 components) into analysis, statistical analysis is conducted to find the critical factors which determine the amounts and the number of cases of FDI from Japan, by industrial sector. Finally similar analysis is conducted to find the critical location specific variables for FDI outflow.Most of these analysis mentioned above were mainly conducted with multh-regression analysis for the dataset coverd thirty-five LDCs and Japanese FDI during 1989-92, by industrial category.Main findings include : most of previous papers handled the total FDI amount as a dependent variable for the analyses to find the determinant factors for Japanese FDI outflow. This analysis finds such methodology distorts the firms' actual behavior in regard with FDI. This is bacause the average and necessary amounts of FDI would vary among industrial sectors. Another key finding suggests Japanese firms would pay little attention to the country risk factors so as to host countries, especially to the political risk factors. Less