Publication Date

January 1999

Publication Details

Lee, BC and Powell, JG, Valuation of foreign direct investment in the presence of political risk, Working Paper 99-8, Department of Economics, University of Wollongong, 1999.


Investments in a country are subject to risks stemming from the same political events and government policies. Therefore it is possible to construct a portfolio which mimics the income profile of a particular FDI project using assets with readily observable prices. This paper provides a general risk replication model for valuing FDI projects in the presence of political risk.