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Foreign Direct Investment and Home-Country Political Risk: The Case of Brazil

Published online by Cambridge University Press:  05 September 2022

Sandra Aguiar ,
Luís Aguiar-Conraria ,
Mohamed Azzim Gulamhussen  and
Pedro C. Magalhães
Sandra Aguiar
Affiliation:
Indaqua S.A.
Luís Aguiar-Conraria
Affiliation:
University of Minho
Mohamed Azzim Gulamhussen
Affiliation:
Instituto Superior de Ciências do Trabalho e da Empresa
Pedro C. Magalhães
Affiliation:
Institute of Social Sciences of the University of Lisbon
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Abstract

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This article looks into the factors that explain foreign direct investment (FDI) in Brazil by country of origin. We collected a sample of 180 countries with and without FDI in Brazil. We use multiple estimation techniques and controls to isolate the effect of country political risk on outward foreign direct investment and show that countries with lower levels of political risk undertake more FDI in Brazil, and that features of the policy environment of home countries drive the negative relationship between risk and FDI. Furthermore, we show that the aspect of the political and institutional environment that is most likely to drive this negative relation between risk and investment into Brazil is related to the effectiveness of national governments. Our findings broaden the understanding of the puzzling influence of political risk on FDI observed in previous studies, correct for sampling and selection biases, and have substantive implications for policy design to attract FDI.

Resumo

Resumo

Neste trabalho analisamos que características dos países de origem explicam os investimento direto estrangeiro (IDE) no Brasil. Recolhemos dados para mais de 180 países investidores e não investidores no Brasil. Recorrendo a diversas técnicas de estimação e controlando outras variáveis isolamos o efeito que o risco político de cada país tem no IDE. Concluímos que países com menor risco político têm mais apetência para investir no Brasil. Mostramos ainda que a característica do ambiente institucional e político mais relevante para explicar este resultado prende-se com os níveis de eficácia governativa por parte dos diversos governos nacionais. Os nossos resultados contribuem para a compreensão entre a relação entre risco político e IDE encontrada em estudos anteriores, corrigem alguns problemas e enviesamentos amostrais e têm implicações relevantes sobre o tipo de políticas adequadas para atrair IDE.

Type
Research Article
Information
Latin American Research Review , Volume 47 , Issue 2 , 2012 , pp. 144 - 165
Copyright
Copyright © 2012 by the Latin American Studies Association

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