Analyzing The Influence Of Country Risks

Abstract

In light of the fluctuations in FDI flows within the MENA region, the share of these flows as a proportion of global FDI is significantly affected. The majority of investments are driven by non-resident investors, with the foreign investment climate heavily influenced by local developments. Enhancing foreign direct investment (FDI) in host countries requires long-term planning and addressing various factors specific to the MENA region. This study aims to assess the impact of country-specific risks on foreign direct investment, using Egypt as a case study. Monthly financial data from 2010 to 2023 were analysed, with each type of risk factor (economic, financial, and political) evaluated for its effect on FDI. The study employed the Autoregressive Distributed Lag (ARDL) model to analyze the data. The findings indicate a significant long-term relationship between country risk indicators and foreign direct investment. Specifically, the study reveals that economic, financial, and political risks negatively influence FDI over time. Political and economic instability, regulatory challenges, and geopolitical risks in Egypt during the study period increased uncertainty, thereby impacting the stability of the investment environment. This research contributes to understanding the dynamics of investment flows in Egypt and offers insights into the broader North African and Middle Eastern region (excluding Gulf countries). It enriches the existing literature on country risks and their influence on FDI, with a focus on Egypt as a representative case study .