Risk and Foreign Direct Investment - Index of

Part III
The Different Types of Risk
Breaking the risk construct into distinct exposures to multiple
environmental contingencies allows for more precise specification
of the relations between risks and strategies.
(Miller 1998: 510)
There are a number of different types of risk relevant to an international
investment project. The exposure to different risk types
creates risk environments which differ according to the nature of the
relevant risk events characterising them. In particular, these risk
environments differ significantly by sector of the economy or industry,
and by country location. This section seeks to find a schema for
distinguishing such risk environments, which can serve as a template
for the measurement of both generic and specific project risk.
It is easier to measure a ‘systematic’ generic risk than it is to measure
the specific risk of a single project. The section therefore moves from
the generic to the specific, from global, industry and country risk to
enterprise or project risk. The ultimate aim of the analysis, after the
achievement of a clear identification and measurement of risk, is
to see how that risk can be incorporated into the present value
formula. In the process, the analysis moves to a point at which there
are workable measures of risk which can be incorporated into an
international investment appraisal. An initial aim is to remove any
divergence in the use of the terminology used in identifying risk and
to establish a comprehensives and clear taxonomy, although it must
be accepted that this terminology is relevant to the FDI decision and
not necessarily to other decisions, such as those relating to portfolio
investment or to the making of loans.
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