Geographical and behavioral economics of political risk for foreign direct investment location

Abstract

This thesis analyzes the perception gap between political risk assessments observed at the national level, and the different realities of sub-national city regions whose risk regime is not reflected by the national indicators, and its implication on foreign direct investment (FDI) location decisions. The purpose of this research is to understand how and why the national political risk assessments of countries with internal armed conflicts override the ability of regional investment promotion agencies to attract FDI into financially sound projects of high developmental value. This thesis complements the standard political risk underlying theories with geographical and behavioral economic theories, in order to propose a sub-national political-risk-assessment approach that could show the safer regions within riskier countries. It is based on the analysis of the Colombian Metallurgical Coke and Power Plant Project COLMECO, designed to be located in the Barranquilla Metropolitan Area, within the Atlantico Department, a region that has traditionally experienced no open internal armed conflict confrontation. The conclusions of this research prove and justify the sub-national risk assessment approach proposed.