Political risk factors as determinants of FDI in developing countries: the case of Iraq

Abstract

Foreign direct investment (FDI) has been identified as a key driver of economic growth and poverty alleviation, especially in developing countries. The increase in political risks, on the other hand, is a major reason for the fall in foreign investment in developing countries. Political risks are seen as the most significant risk to foreign direct investment in developing countries. The precise impact of political risk on FDI is not obvious from available literature; Current literature is fragmented and unmapped. Most previous research regards political risk variables as part of country risks; nevertheless, the focusing on specific political risk components is quite limited. Further, political risks as determinants of FDI explaining performance results at the firm level may differ in the same environment. Thus, more research is needed on political risk variables as drivers of FDI decisions at the firm level, particularly in developing nations. This article proposes eight political risk indicators as predictors of FDI in Iraq to fill this research gap. Investigating such FDI factors can assist in giving light to how some developing countries, such as Iraq, can attract more foreign investments.