The Impact of Alternative Forms of Risk on Foreign Direct Investment: The Case of CARICOM Members

Foreign Direct Investment (FDI) flows have been the focus of much recent study. Investors consider many factors when determining where to invest capital. In this study, data from a number of CARICOM member nations are analyzed to investigate the relative impact of various components of country risk on flows of FDI, along with relevant economic measures. Most prior studies consider the effect of overall country risk on FDI as opposed to alternative forms of risk. While confirming that FDI inflows are positively impacted by openness to trade, prior FDI stock and GDP growth, as anticipated for exportseeking FDI, our findings also indicate that government stability is the element of country risk that most impacted the investment decisions of FDI sources. Additionally, we confirm the positive relationship between FDI inflows and return on investment that has been reported for other developing economies.