An Evaluation of Country Risk in Assessing Direct Foreign Investment

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Deciding which country or region of the world to expand and/or continue a firm's direct foreign investment is a decision fraught with risks. Multinational firms are faced with making the decision of expanding their business without full knowledge of what will occur in the months or years ahead in the region with which they are proposing expansion. Many of the factors which will affect the decision are non quantitative in nature and make the decision more difficult for the firm to undertake. This paper uses an analytical hierarchy process to help analyze both quantitative and qualitative factors which will affect a country's or region of the world's risk level. The model can be used to evaluate country risk in assessing potential direct foreign investments and can lead to a better allocation of the firm's scarce resources to more profitable areas.

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