CountryRiskAndItsImpactOnForeignDirectInvestment.docVIP

Country Risk And Its Impact On Foreign Direct Investment Decision Making Process: A Bulgarian Perspective Miroslav Mateev Professor of Finance American University in Bulgaria Phone: +359 73?888 440, Е-mail: mmateev@aubg.bg Ivan Stoyanov Financial analyst MKB Unionbank, Bulgaria Phone: +359 02?915 3337, Е-mail: stoianovi@unionbank.bg  Country Risk And Its Impact On Foreign Direct Investment Decision Making Process: A Bulgarian Perspective ABSTRACT This paper examines the impact of country risk on Foreign Direct Investment /FDI/ inflows in Bulgaria. The paper attempts to answer the question: How important is actually country risk and to what degree it may impact foreign investment decisions? Based on a comprehensive analysis of the FDI inflows in Bulgaria for the period 1992 – 2006 the paper proves that foreign direct investment are of crucial importance to the process of transition from a planned to a market economy for the Central and Eastern European (CEE) countries in the global marketplace. Using the research data from a survey of 132 foreign companies invested in Bulgaria during that period we evaluate the specific impact of different country risk components on FDI decision making process from a Bulgarian perspective. Factors such as type of investment, cost of entry mode, opportunities and risks arising from the investment and overall business climate play a decisive role in the company’s strategy to enter a foreign country. In compliance with other similar researches we find that market size, low unskilled labor cost, avoidance of trade barriers, geographical proximity, and prospects for market growth are the most important invectives for FDI in Bulgaria. What is more, the paper explores the specific obstacles /barriers/ that foreign investors and foreign MNEs face during the establishment of their FDI projects in a transition country, such as Bulgaria. Keywords: country risk, transition economy, credit rating, foreign direct