A quantitative approach to guiding the promotional efforts of IPAs in emerging markets

Investment promotion agencies (IPAs) engage in a range of promotional activities with the aim of improving foreign direct investment (FDI) inflows. However, at any particular time, they tend to concentrate their efforts towards image building or investment generation. The decision of where to focus promotional efforts depends on investors’ perceptions of the IPA's location. In contrast to current methods, this paper employs an innovative quantitative finance approach that allows IPAs to speedily measure risk perceptions using real-time data. Using this approach, the paper focuses on determining whether or not the risk of nationalisation is a concern for large multinational companies in the natural resource sector. Our empirical results demonstrate that such companies are not concerned about nationalisation risk. The findings have implications for guiding the promotional efforts of IPAs, both in countries where nationalisation is a risk and in countries where changes in the political environment have reduced the risk of nationalisation.

► We quantitatively measure political risk perceptions in an emerging market using high frequency data.
► Large multinational companies in the natural resource sector are not concerned about the risk of nationalisation in Bolivia.
► IPAs in countries affected by nationalisation should focus their promotional efforts on investment generation when attempting to attract such companies.