Evaluation of the Investment Climate of Developing Economies

Abstract

This study presents a model for appraising the investment climate of developing economies with a view to reconciliating the conflicting goals of multinational corporations (MNCs) and host countries. The study is based on the premise that foreign direct investment is awin:win proposition for both MNCs and host countries. The limitations of conventional approaches to risk analysis, based on narrow commercial or beta risk, and much broader alpha or political risk criteria are identified. The case for refinement of conventional techniques and the formulation of structured systematic alternative methods is presented. The short- and long-term factors in a country's investment climate appraisal are identified. An algebraic exposed and empirical validation of the model for investment climate appraisal is detailed in the ASEAN context. It is contended that the model can be operationalised for a larger sample of developing countries using readily available published data.