Country risk: Its measurement and impact on foreign direct investment

This dissertation contains three distinct studies that explore aspects of the phenomenon of country risk. For U.S. firms in particular, the Iran crisis and passage of the Foreign Corrupt Practices Act raised the perceived importance of country risk. Various primarily Western organizations provided risk information and ratings of differently labeled types of country risk. Researchers explored the implications of risk variance---relating it to economic development and foreign direct investment (FDI). This dissertation clarifies the field of country risk and its various measures, considers the influence of risk on FDI decisions and then explores how the risk/FDI relationship differs in emerging countries.; The first chapter evaluates the multi-faceted field of country risk that developed over the last few decades. Analysis of several prominent aggregate risk measures challenges labeling distinctions in the field. Aggregate measures of different risks provide similar ratings. Further investigation, though, reveals differences between risk components. Thus, strength in an overall construct of country risk is evident, though dissection of that risk fails.; The second chapter focuses on the relationship between country risk and FDI in the context of the complete FDI equation. Recent FDI research is arguably skewed and focuses mainly on market risk with less attention to market opportunity. However, theoretical analysis suggests market size may have a more dominant influence on the relationship. In addition, idiosyncratic firm considerations can alter the effect of risk on a firm's analysis of a foreign investment. Ultimately, data reveal that market size and market growth are significant predictors of both country risk and FDI. Risk ratings, adjusted to remove this influence of market size, add little value to the overall equation.; The third paper analyzes FDI in the context of emerging markets. Recent research interest in emerging markets has been criticized for failing to adequately account for unique characteristics of these markets. This final study considers how distinct features of emerging markets influence the FDI equation. A comparison of regressions evidences differences in the influence of market elements in emerging versus other countries, and specifically finds that risk ratings have no significant effect on FDI decisions involving emerging countries.