Risks and Foreign Direct Investment Inflows: Evidence from Yemen

Hamdan Amer Ali Al-Jaifi, Nur Adiana Hiau Abdullah, Angappan Regupathi

Abstract


ABSTRACT

This study aims to find the relationship between the political, exchange rate and inflation risk factors with the Yearly Foreign Direct Investment (YFDI) in Yemen, over the period between 1990 to 2010. Secondary data results showed that political risk and exchange rate risk have an inverse relationship with YFDI, while inflation risk has a significant positive relationship. Further analysis on a survey collected from 62 multinational enterprises (MNEs) operating in Yemen showed an insignificant relationship between the perceived political, exchange rate and inflation risk factors and corporate foreign direct investment (CFDI). The conflicting results possibly imply that the MNEs’ subsequent capital investments may not be affected by the perceived political, exchange rate and inflation risks that would nonetheless have been considered during the initial business plan. It is likely that MNEs that were already operating in Yemen may have developed capabilities in terms of knowledge, bargaining and lobbying skills. Therefore, perceived risks are no longer seem to influence their investment decisions.

Keywords: Foreign direct investment; political risk; exchange rate risk; inflation risk; multinational enterprises

ABSTRAK

Kajian ini bertujuan mengenal pasti hubungan di antara faktor-faktor risiko politik, tukaran asing, dan inflasi dengan pelaburan langsung asing tahunan (YFDI) di Yaman sepanjang tempoh 1990 hingga 2010. Dapatan data sekunder menunjukkan bahawa risiko politik dan risiko tukaran asing mempunyai hubungan songsang dengan YFDI, manakala risiko inflasi mempunyai hubungan positif yang signifikan. Analisis selanjutnya terhadap data soal selidik yang dikutip daripada 62 syarikat multinasional (MNEs) yang beroperasi di Yaman, menunjukkan hubungan tidak signifikan antara faktor tanggapan risiko politik, tukaran asing dan inflasi dengan pelaburan langsung asing korporat (CFDI). Keputusan yang bertentangan ini memberi implikasi bahawa pelaburan modal syarikat multinasional yang berikutnya mungkin tidak dipengaruhi oleh faktor-faktor tanggapan risiko politik, tukaran asing dan inflasi, walaupun faktor-faktor ini seharusnya telah diambil kira pada peringkat awal rancangan perniagaan. Ada kemungkinan juga bahawa syarikat multinasional yang telah beroperasi di Yaman telah membangunkan keupayaan dari segi pengetahuan, tawar-menawar dan kemahiran melobi. Oleh itu, tanggapan risiko tidak lagi mempengaruhi keputusan pelaburan mereka.

Kata kunci: Pelaburan langsung asing; risiko politik; risiko tukaran asing; risiko inflasi; syarikat multinasional


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