A MODEL FOR MAKING FOREIGN DIRECT INVESTMENT DECISIONS INCORPORATING REAL VARIABLES FOR POLITICAL AND ECONOMIC RISK ANALYSIS

The Foreign Investment Risk Matrix (FIRM) developed by Bhalla (1983) uses political and economic risk measures for FDI decision making. FIRM may be used to develop a matrix that categorizes countries based on political risk and economic risk as acceptable, unacceptable, or uncertain for investment. We discuss country risk analysis, methods of defining country risk, and country risk services. We demonstrate the model using three measures of political risk and three measures of economic risk. After determining the group of countries that would be acceptable for FDI, the multinational companies can focus on further analysis of acceptable countries