Emerging markets frequently feature strong economic growth but also unique risks – political instability, legal uncertainty and corruption – which constitute barriers to foreign direct investment (FDI). This study analyzes empirically whether superior investment profiles of recipient countries matter for German FDI in addition to typical determinants such as labor costs, level of income and market openness. The specifics of banking FDI are also examined, notably the impact of incipient banking crises abroad and the risk-mitigating property of multilateral development banks acting as stakeholders in individual FDI projects. The concluding part highlights recent initiatives of international organizations to lower investment barriers, fight corruption and strengthen financial system stability.

The Author: Torsten Wezel, born in Frankfurt/Main in 1967, studied business administration and economics at the Universities of Frankfurt and Iowa, where he also held research positions. Since 1998 he has worked in the international relations department of the Deutsche Bundesbank, specializing in IMF/World Bank issues, and, temporarily, in its economic research center. In 2004, while being seconded as an expert to the European Central Bank, he was awarded a doctorate in economics by the WHU Wissenschaftliche Hochschule für Unternehmensführung, Vallendar.