Based on the identification of two transition phases within the
Investment Development Path (IDP), this study explores the relationship
between country risk and foreign direct investment (FDI) over time and
in relation to the process of economic convergence between emerging and
developed economies. The findings suggest that both economic - and
business environment risk factors are closely related to FDI flows.
Furthermore, it is found that as countries progress through the various
stages of the IDP, economic convergence comes together with similar
trends of convergence in economic - and business environment risk
exposure. These simultaneous long-term developments plausibly contribute
to the convergence of countries in terms of in- and outward FDI flows
during the later stages of the IDP.
JEL Classification: F21, F23, F43
Keywords: Country risk, foreign direct investment, convergence