Foreign Direct Investment and Government Stability

Colby, Christian, Danielle, Luis, and StefanINB 555 Competing in the Global Economy

FDI and Government StabilityAgenda

Question Posed

Country Selection – Stability Ratings

Investing Company Selection

Regression analysis breakdown

Results and analysis

Questions

FDI and Government Stability

Question Posed :

“ Is there a correlation between the stability of a government and its involvement in Foreign Direct Investment?”

FDI and Government StabilityCountry Selection – Stability Ratings

30 Nations from around the world

5 different governing types

Stability Rating 1 or 0

Majority are stable

4 countries with instability

FDI and Government Stability

Country Selection – Stability Ratings

Top Three countries

Different political systems

All three are permanent members of the UN Security Council

One is considered a developing nation

FDI and Government Stability

Investing Company Selection

Europ

e (E

U)

Europ

e (n

on-E

U)Asia

North

Am

erica

South

Am

erica

Midd

le Eas

t 0

4

8

12

8

3

6

11

1 1

Organizations by Location

Developed Nations Developing Nations0

10

20

3025

5

Economic Development

Total Revenue US 2.4 trillion UK 8.6 billion China 7.2 billion

Total Invested US 2.1 billion UK 1.4 billion China 1.5 billion

FDI and Government Stability

Investing Company Selection

Oil & Gas12

Automobile5

Conglomerate3

Retail 2

Commodities2

Finance2

Info Tech1

Telecom1 Electronics

1 Power Utility(Elec.)1

By Industry

FDI and Government StabilityRegression Analysis

• Independent Variables – Stability Rating (SR), The

Top 30 Companies in FDI (TT), GDP (GDP), and FDI stock (FDIS)

– Measured the correlation to overall host country FDI

• R Square = 81.85%• Adjusted R Square =

78.95%• F Statistic = 28.19• SEE = $228,768.85

* Used economic general rules of thumb for critical values

Y = 2,053.25 + 39,776.3(SR) + 0.0000184(TT) + 0.028(GDP) + 0.00000723(FDIS)

FDI and Government StabilityRegression Analysis Cont’d

Variable T statistic Coefficient

Stability Rating 0.312519998 39776.29785

Top 30 Total FDI 0.06283412 1.84186E-05

GDP 0.686520295 0.028163213

FDI Stock 4.395857904 7.23608E-07

FDI and Government Stability

Results

“ Is there a correlation between the stability of a government and its involvement in Foreign Direct Investment?”

FDI and Government Stability

Analysis

Not enough turbulence in sample population

Variety of organization host nations

Stronger way to classify whether a nation is stable or not

Expand number of FDI organizations

FDI and Government Stability

Questions