Country Risk and Foreign Direct Investment

From the point of view of investing firms, a special challenge related to cross-border investments are the long-term economic conditions in the respective target countries: namely legal, political and economic stability. These factors are mostly summarized in the form of country risk. Developing and emerging economies have significant potential on the one hand, but are also characterised by relatively high risk on the other. Between 1989 and 2011 the majority of German direct investment flowed into countries that were less at risk. The statistics available also confirm that manufacturers like, for example, in the automotive industry, are investing in strongly growing economies.