Inevitable Political Risks of FDI: 'Stabilization Clause' or 'Political Risk Insurance'?

Abstract

Almost every country competes to attract FDI, unless their policy makers do not like to bring more financing, know-how, and/or employment to their economies. The earlier data shows that FDI has been increasing significantly since 1980 due to worldwide economic growth and integration. The data also shows that FDI has increased from 50 to 2000 billion USD in total and almost 70-80 per cent of all these investments have been made in developing countries. However, some could think and argue that FDI is not necessary, overrated, stealing the market from locals, or oriented by greed. Such arguments and explanations will likely be stronger in developing countries or places where populism is spreading. It appears that that the tendency of favouring populist politicians and parties still exist. This tendency leads to a simple analysis that political risk is inevitable anytime and in any part of the world. In this article, I do not plan to raise any policy debates, such as whether FDI is necessary or not, or even whether populism is misinterpreted or unnecessary. Perhaps, every country and people have the legitimate power to decide how they dictate their internal policy and rules towards FDI. Therefore, this article will only discuss and assess some legal methods of mitigating political risk.