Navigating Country Risk: Impacts on Foreign Direct and Portfolio Investment in Egypt

Abstract

This study examines the impact of country risk on Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) inflows into Egypt from 1998 to 2022. Country risk is analyzed through its economic, financial, and political dimensions. Employing the Autoregressive Distributed Lag (ARDL) model, the findings reveal that economic and financial risks significantly reduce both FDI and FPI inflows, with delayed negative effects. Political risk exhibits a dual impact: attracting speculative FPI inflows in the short term but discouraging long-term investment due to persistent instability. By simultaneously evaluating FDI and FPI, this study addresses key gaps in the literature, offering a comprehensive perspective on how distinct risk factors influence investment flows. The results underscore the importance of fiscal reforms, enhanced governance, and robust financial strategies to stabilize macroeconomic conditions, mitigate political uncertainty, and manage external debt. These recommendations provide actionable insights for fostering a resilient and competitive investment environment in Egypt and similar emerging markets.