Journal of Research in International Business and Management

The effects of political instability on foreign investment: A case study of emerging markets

Klaus Fang^* Department of Business Administration, Ivey Business School, London, Canada
^*Corresponding Author:
Klaus Fang, Department of Business Administration, Ivey Business School, Canada, Email: k.fang@ivey.ca

Received: 03-Apr-2023, Manuscript No. JRIBM-23-98916; Editor assigned: 04-Apr-2023, Pre QC No. JRIBM-23-98916; Reviewed: 18-Apr-2023, QC No. JRIBM-23-98916; Revised: 20-Apr-2023, Manuscript No. JRIBM-23-98916;

Introduction

Emerging markets are considered to be an attractive destination for foreign investment due to their high growth potential, abundant resources, and low labor costs. However, political instability in these markets is a major concern for investors. Political instability can take many forms, such as coups, civil unrest, terrorism, corruption, and poor governance. These factors can disrupt business operations, increase transaction costs, and undermine investor confidence. The purpose of this paper is to examine the impact of political instability on foreign investment in emerging markets, with a particular focus on the case study of Brazil, India, and Nigeria (Agosin & Machado, 2005).

Political instability in Brazil

Brazil is the largest economy in South America and one of the most attractive destinations for foreign investment. However, political instability has been a recurring problem in Brazil. In recent years, Brazil has experienced political crises, corruption scandals, and economic recession. The impeachment of former President Dilma Rousseff in 2016 and the imprisonment of former President Luiz Inácio Lula da Silva in 2018 were major political events that affected investor confidence. The lack of political stability has led to uncertainty about the future of economic policy, the stability of the currency, and the risk of nationalization of assets. As a result, foreign direct investment (FDI) in Brazil has declined in recent years (Cairncross, 2015).

Political instability in India

India is the world's fastest-growing major economy and one of the most populous countries in the world. India has made significant progress in economic reforms and attracting foreign investment. However, political instability is a major concern for investors in India. Political instability in India can be attributed to the diversity of the country, regionalism, and the fragmentation of political parties. Political violence, terrorism, and corruption are other factors that have contributed to political instability in India. The lack of political stability has led to uncertainty about the implementation of economic policies, the protection of intellectual property rights, and the stability of the currency. As a result, FDI in India has been volatile, with fluctuations depending on the political environment (Caves, 1971).

Political instability in Nigeria

Nigeria is the largest economy in Africa and a major oil producer. Nigeria has made significant progress in economic reforms and attracting foreign investment. However, political instability is a major concern for investors in Nigeria. Political instability in Nigeria can be attributed to ethnic and religious tensions, corruption, and poor governance (Jorgenson et al., 2007). The lack of political stability has led to uncertainty about the implementation of economic policies, the stability of the currency, and the security of investments. As a result, FDI in Nigeria has been volatile, with fluctuations depending on the political environment.

Impact of political instability on foreign investment

Political instability has a significant negative impact on foreign investment in emerging markets. Political instability increases the risk and uncertainty of investments, making it difficult for investors to make informed decisions. Political instability can disrupt business operations, increase transaction costs, and reduce the profitability of investments. Political instability can also lead to the loss of property rights and the nationalization of assets, further reducing investor confidence. The impact of political instability on foreign investment is particularly pronounced in the case of long-term investments, such as infrastructure projects and green field investments (Lall & Streeten, 1977).

Conclusion

Political instability is a major concern for investors in emerging markets. This paper has examined the impact of political instability.

To address these challenges, it is essential to develop cultural sensitivity in business communication. This can include developing an understanding of different cultural communication styles, being aware of nonverbal cues, and adapting communication styles to accommodate different cultural contexts. This cross-cultural study highlights the importance of cultural sensitivity in business communication. By understanding and adapting to cultural differences, businesses can improve communication and build stronger relationships with partners and clients from diverse cultural backgrounds.

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Citation: Fang K (2023). The effects of political instability on foreign investment: A case study of emerging markets. JRIBM. 10: 012.