Index EMBI as an indicator of country risk and its impact on the investment decision of MNC in the developing countries
Keywords:investments, multinational corporations, developing countries, econometric analysis, correlation-regression model
In this paper specific country risks, typical for the developing and transforming countries, in connection with their influence on the foreign direct investments (FDI) and the multinational corporations (MNCs) were investigated both theoretically and empirically. Such risks, for instance, could be protective actions of a state to protect domestic producers, discriminatory fiscal policy, bureaucracy, corruption, or even the direct threat of expropriation of the foreign affiliates of MNCs etc. The econometric analysis was made in order to study the impact of country risks on FDI and MNCs abroad. Using a regression model the author has determined the universal indicator for reflecting the risks for FDI activities in the developing countries. It was assumed that the Stripped Spread of Emerging Market Bond Index (EMBI+ Stripped Spread) may represent well a financial or investment risk in the developing country or region as far as spread is a premium or fee obtained by the international investor with the acquiry and holding the risky bonds in the developing market. This assumption was the base for the econometric regression model to use the spread of index EMBI as a proper measure of a country risk. As a result the negative relationship between the index EMBI and the foreign direct investment of MNCs was detected and confirmed like it was predicted before the analysis. Hence, the negative impact of the country risk on the FDI and activities of MNCs in the developing countries was proven empirically too.
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