Political Risk Assessment Research Articles

Intergroup Biases in Assessing Political Risk: The Role of National Identity

Geopolitics are back as a subject of inquiry in international business and have increased the threat of political risk for MNEs and domestic firms globally. However, firms may struggle to assess political risk accurately due to the social identity processes within top management teams that influence information seeking and processing. This article offers a brief introduction to an intergroup bias which can harm political risk assessments, namely managers filtering risk through a national identity lens. Focusing on the consequences of identity bias, we suggest ways in which political risk assessment may be made more effective for managers – and accurate.

Influence of Political Risk on International Business Operations in Germany

Purpose: The aim of the study was to investigate the influence of political risk on international business operations in Germany. Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries. Findings: The study revealed that political uncertainties, such as shifts in government policies, geopolitical tensions, and regulatory changes, can significantly impact the business environment, investment decisions, and market opportunities in Germany. While Germany is known for its stable political system and business-friendly environment, recent developments, such as Brexit, global trade tensions, and the rise of nationalist movements, have introduced new layers of complexity and uncertainty for international businesses operating in the country. These political risks can manifest in various forms, including disruptions to supply chains, fluctuations in currency markets, and heightened regulatory scrutiny, necessitating proactive risk management strategies and adaptive business practices. Unique Contribution to Theory, Practice and Policy: Institutional Theory, Resource Dependence Theory (RDT) & Transaction Cost Economics (TCE) theory may be used to anchor future studies on influence of political risk on international business operations. Implement regular political risk assessments using this comprehensive framework to identify potential threats and opportunities in different regions. Businesses should use advanced analytics and scenario planning to forecast potential political changes and their impacts. Businesses should diversify their investments across multiple countries and regions with varying political risk profiles. Policymakers should establish standardized guidelines for political risk assessment to ensure consistent and accurate evaluation across industries and regions. This will help firms better prepare for and mitigate political risks.

International development cooperation and political risks for transnational business: Linking research topics

International development cooperation and political risks for transnational business are two topics which have always drawn attention from specialists in international political economy. Each of these topics is studied by a dedicated subdiscipline with a specific terminology, strong analytical centers and influential peer-reviewed journals. Despite political risks had initially been associated with developing countries (and transition economies — after the Cold War), two distinctive research clusters have developed separately from one another — quite inexplicably. Drawing on the idea of immanent proximity of international development studies and political risk analysis, this paper develops the logic of blending their research agendas.The first two sections formulate key presumptions meant to justify the conjugation of two topics. The first presumption is an acknowledgement of an engrained commercial motivation in any modality of development cooperation and the latter’s ability to serve as a tool to promote foreign economic interests. The second presumption emphasizes the existence of an indissoluble link between political risks for business with socio-economic and political development disbalances within and between countries. The final section identifies concrete dimensions of conjugation of two research agendas, such as: 1) conducting political risk assessments in the course of programming and implementing development projects; 2) examining the impact of political risk manifestations on provider countries’ ability to mobilize financial resources for international development; studying the practices of using different development cooperation tools to mitigate political risks for foreign economic activity — both through a direct and deliberate reduction of risk perceived by business and through an indirect impact on the environment where political risks are formed; 4) exploring the logic of emergence of new risk factors (of various types) in the course of implementing development cooperation policies. The conclusion argues for focusing on the reverse impact of new trends in international development cooperation on the parameters of political risks for international business from the Western and non-Western countries amidst the global turbulence, using all available sources of statistical data — conventional and unconventional. It also draws a step-by-step research plan and assesses the theoretical and policy relevance of obtaining anticipated results.

Political Institutions and Global Project Finance Loans

Abstract This paper explores the link between political institutions and the size of global bank loans received to fund project finance (PF) transactions, a commonly used funding method for domestic infrastructure construction. We theorize that lenders’ political risk assessments lead to a prioritization of political predictability over other institutional features of host countries. This indicates that, all else being equal, full democracies and politically closed regimes have advantages in attracting global PF capital, while hybrid regimes are least likely to receive global funds for similar projects. Using the global PF deals reported by the DealScan database and data on political institutions and economic indicators, we show that the relationship between host country regime type and global bank loans is indeed U-shaped. Our additional analysis demonstrates that a greater PF investment is associated with a lower hazard rate of regime failure in host autocracies, particularly in the form of an irregular exit by a dictator. Overall, our findings suggest that global bank loans, mostly originating from economically advanced democracies, contribute to infrastructure funding in dictatorships that might not otherwise be available through domestic or sovereign borrowing channels.

The political determinants of country crises

PurposeCountry crises can provoke damages to a country's economic activity and citizens in a way that will always demand a deeper understanding of their determinants. Political issues are commonly mentioned as an important factor boosting these crises. This paper investigates the political factors behind financial crises and recessions.Design/methodology/approachUsing variables from the ICRG rating system, logistic panel regressions are run to determine whether or not the political risk variables explain country crises.FindingsResults disclose the importance of socioeconomic conditions to financial crises and recessions with no influence from the political arena. Against expectations, political instability does not help to explain crises. Political risk ratings also show their importance, demonstrating that the higher is the risk, the higher is the probability of debt and currency crises occurrence.Originality/valueThe findings in this paper contribute to a growing literature of political risk and crises, enhancing the value of political risk assessment and increasing the application of its consequences.

Artificial intelligence and the fifth phase of political risk management: An application to regulatory expropriation

AbstractUsing the context of regulatory expropriation, this article extends political risk management theories, forecasting methodologies (employing artificial intelligence, machine learning, and data analytics), and human intelligence evaluation tools useful for multinational enterprise executives in their planning and decision‐making responsibilities. The article identifies three key areas where artificial intelligence will specifically assist managers in analyzing and mitigating risks: (a) earlier identification of risks, (b) precision in risk assessment, and (c) identification of unknown unknown risk correlations. These three categories also represent how artificial intelligence and its application to political risk assessment will evolve in the fifth phase of political risk management, and why it is of particular relevance to risks such as regulatory expropriation. Using the example of an oil exploration joint venture between Russian TNK and BP, and reflecting political and public policy indicators of regulatory expropriation, this political risk management framework and its hypothetical development are illustrated.

Risco político na visão chinesa como determinante dos investimentos externos no setor petrolífero brasileiro (2011 a 2014): Parceiro estratégico ou apenas garantia da segurança energética chinesa?

O crescimento da economia chinesa veio acompanhado do investimento para responder à demanda energética. No Brasil, a China se tornou importante investidor no setor petrolífero. Contudo, esquemas de corrupção assolaram as companhias petrolíferas chinesas. O trabalho pretende analisar se houve durante o processo de investimento das empresas petrolíferas chinesas no Brasil, a avaliação do risco político e se contestado, continuou devido o ambiente promissor para garantia da segurança energética chinesa.

Big Data-Based Assessment of Political Risk along the Belt and Road

Political risk assessment has become increasingly important in recent years, especially with the launch of the Belt and Road Initiative (BRI) and with Covid-19 still ravaging the world. This study aims to assess systematically the political risk of BRI countries during the period from 2013 to 2019 based on three big data sets, the Global Database of Events, Language, and Tone (GDELT), China Global Investment Tracker (CGIT), and Armed Conflict Location & Event Data Project (ACLED). It is found that to properly quantify the political risks for BRI countries, the type of events, “Material Conflict”, and a variable characterizing the degree of cooperation/conflicts of the events, the Goldstein Scale, are of critical importance. Based on the chosen type of events and variable, we design a normalized variable to assess political risk of any country in any year so that comparison among different countries can be meaningly made. By decomposing political risk into two components, domestic and international, and examining the spatiotemporal evolution of political risk along the Belt and Road, we find that the sum of the number of BRI countries with the extremely high level and the high level of domestic, international, and (overall) political risk all reached the peak in 2015, and decreased thereafter, and that often the level of domestic political risk along the Belt and Road was higher than the international political risk. It is also found that a strong positive correlation exists between political risk and China’s total investments and construction contracts along the Belt and Road during this period. The implications of this positive correlation are discussed. The analysis presented here may help to promote the sustainable development of BRI, and be extended to examine the risks associated with foreign investments other than BRI projects.

Bibliometric evaluation of research on political risks in construction projects

The current study aims to provide an overview of the research on political risk using the Web of Science（WoS）database as well as summarize research results and put forward some suggestions for research directions of political risk in international construction projects. It is the first time scientometric analysis of political risk research is executed. In this regard, the papers related to political risk in the WoS database have been retrieved and the literature is sorted out by visual and content analysis methods. Visual analysis is used to analyze the research overview, knowledge base, and research hotspots of this field. The content analysis method is adopted to expound the current research focus from three perspectives inducing the influence of political risk, risk assessment, and risk management measures. The results show that in the political risk context, the number of publications has experienced an increasing trend in recent years. Based on the existing literature on political risk for all companies, this overview provides some suggestions to address the political risk in international construction projects in the future. The results contribute to the scholars understanding of the research overview, research hotspots, and future research directions of political risk research in construction projects.

Political risks and foreign direct investments by multinational corporations: A reference point approach

AbstractResearch SummaryThe purpose of this study is to develop a behavioral framework for management decision‐making under bounded rationality to analyze foreign direct investments and political risks in host countries. This study shows that managers construct reference points on political risks and assess actual political risks in host countries relative to these reference points. This study considers that the political risk reference point is a mental map made up of (a) perceived political risks in host countries where multinational corporations (MNCs) operate and (b) home country political risks. We find that MNCs interpret political risks in host countries as opportunities (threats) if the political risks are below (above) their reference points. Our study provides a significant contribution to the literature on microfoundations of location strategy.Managerial SummaryPrior empirical studies have found both positive and negative effects of political risks on MNCs' investments. This study develops a behavioral framework for MNCs' boundedly rational decision‐making in political risk assessment. Characterizing political risks in host countries by the concept of a political risk reference point resolves the contradictory findings in the literature. Using data from the global mining industry, we find that MNCs interpret political risks in host countries as opportunities (threats) if the political risks are below (above) their PRRPs. We also show that the other competing companies' reference points do not have significant effects on MNCs' investment decisions. These findings offer managerial implications because they help managers predict competitors' actions.

The Institutionalization of Political Risk Assessment by Chinese Multinational Firms

Some researchers have claimed that Chinese firms are impervious to political risk, calling into question the institutionalization of political risk by Chinese firms. Building on resource dependence theory and the literature on non-market strategies, this study finds significant impact by ownership structure, firm scale, and the degree of internationalization on the institutionalization of political risk assessments (IPRA) by Chinese firms. As such, state-owned firms and larger firms cultivate a higher level of IPRA. We find a positive impact of a firm’s scale and scope of internationalization, but insignificant impact of depth of internationalization.

Improving Quantitative Assessment of Political Risk in International Construction Projects: The Case of Chinese Construction Companies

AbstractPolitical risk is one of the most prominent dangers for International Construction Companies (ICCs) to deal with in overseas countries. Despite considerable studies on political risk manage...

Re-examining Political Risk Assessments in Volatile Regions

Conventional country risk and political risk indexes, to formalize the process, have attempted to standardize and generalize assessment models for factors that are highly context specific. Hence, the value derived from traditional political risk indexes lack precision and are therefore less reliable. This paper re-examines political risk analysis and explains how understanding the topology and nature of political risk in emerging and developing markets is a crucial advancement in developing political risk analysis for the private sector and government agencies. Particular focus is given to develop political risk characterization as a risk analysis category. To bridge the conceptual gap between risk assessment and risk management, this paper proposes the concept of complex adaptive systems as the backdrop for emerging political risk scenarios.

The causality link between political risk and stock prices

Purpose Prior studies have paid close attention to the impact of political risk on financial markets. Following this strand of literature, this paper aims to focus on the causality link between political shocks and their impacts on emerging stock markets. Design/methodology/approach This paper highlights an innovative counterfactual model for political risk assessment. Based on a natural experiment, i.e. the Taiwan Strait Crisis in 1995-1996, this study utilizes one data-driven approach, e.g. the synthetic control methods (SCMs), to estimate causal impact of this political shock on Taiwan’s stock market. Findings Major findings in this study are consistent with existing literature on the price of political risk, e.g. political uncertainty commands a risk premium. The SCM estimations suggest that Taiwan’s stock prices dramatically underperformed its newly industrialized peers and other developed markets during the crisis. The SCM results are statistically significant and robust to various cross-validation tests. Research limitations/implications Findings in this study indicate that political risks could generate enormous impacts on emerging financial markets. In particular, political uncertainty following new geopolitical dynamics requires proper identification and assessment. Originality/value To the author’s knowledge, this paper is the first rigorous counterfactual study to the causality relationship between political uncertainty and stock prices in emerging markets. This paper is distinct from previous studies in applying a data-driven approach to combine the features of learning from others (cross-sectional) and learning from the past (time series).

Risk assessment in commercial real estate development

PurposeThe purpose of this paper is to analyze the commercial property development risk factors from the entrepreneur’s point of view against social, economic, environmental, technological and political risk assessment criteria. After that, this study aims to assess the risk factors based on the analytical network process (ANP) model and to prioritize the key risk factors to identify which risk factor is highly affected to the commercial development process.Design/methodology/approachThe data were collected through face-to-face interviews using a structured questionnaire. The analysis of the risk factors involved the ANP model using super decision software.FindingsThe results revealed that there are five major risk factors such as environmental, social, economic, technological and political risk, and 32 sub-risk factors. According to the super matrix calculation, the synthesized values for three projects were 0.0704, 0.0532 and 0.0431, respectively. It was identified that Ward City was 0.0704, indicating that it is comparatively less risky and, hence, can be categorized as the best development and considering the sub-risk factors; the results show that the highly affected risk factors for the development are: the council approval process, climate changes and natural disaster, and the least affected risk factors are confidence to the market, lifecycle value, investment return and currency conversion factor.Practical implicationsThe paper includes implications for the development of commercial properties, risk and risk assessment criteria to make risk management strategies and policy implementation.Originality/valueThe research findings are helpful in improving risk management strategies in the country, and policy formulation should focus on the above identified three risk factors in order to mitigate the risk in every stage and to achieve sustainable project development while increasing the satisfaction of long-term investment goals.

Assessment of the Political Risk in a Country: a Practitioner’s View

Political risk is inherent to foreign investment. It stems from either the government's or the political regime's instability, or restrictive and compelling governmental policies. To cope with this risk, two complementary instruments are used: risk assessment and deterrent measures. Taking into consideration South America, the author explains how the political risk assessment is realized through risks indexes, public or corporate: each carries its own criteria as shown here by the analysis of General Motors and Union Carbide methods of assessment. The author then discusses the means available to the investor to forecast and minimize the negative effects of the actualization of a political risk. He identifies two main categories of deterrent measures: business oriented strategies carried out by the investor or legal techniques of protection. Among the latter, the author analyses the stabilization and internationalization clauses; the security offered by certain bilateral or multilateral treaties to foreign investment; the guarantees agreed upon by organizations such as the Multilateral Investment Guarantee Agency; the transfer of domicile of legal entities.

Political risk assessment by multinational corporations in African markets: A Nigerian perspective

Political risk assessment (PRA) is one of the determinants of foreign direct investment (FDI) and the competitiveness of multinational corporations (MNCs), yet little is known about its use in African markets. This study critically investigates the PRA techniques used by MNCs in Nigeria and their applicability. It uses a multimethod approach to analyze data collected from MNCs and the data set of the International Country Risk Guide (ICRG) PRA annual rating for Nigeria from 2011 to 2015. The findings reveal that most firms use qualitative, rather than quantitative, PRA techniques. Regional variations in the outcome of PRA within Nigeria could also contribute to the low use of quantitative techniques. This article identifies that firms are prepared to invest in Nigeria, in spite of high political risk, due to its economic and financial attractiveness. This article's findings offer some implications for practice with some suggestions on how it could influence firms’ internationalization and their conduct of PRA.

The Field of Political Risk Assessment: Examining the Definitions, Evolutions and Mitigation Strategies of a Developing Political Field

This research paper will pose the question: how has the field of political risk assessment evolved and what are its implications for strategies that international firms can employ to reduce the impact of political risk? Prior to addressing this question, the paper outlines the definitional issues that are necessary to undertake this study. This is done so as to reiterate that the field of political risk assessment is multidisciplinary and has been varying based on different interpretations of the subject as a field of study. Following this, in order to answer the question posed, this paper addresses the evolution as a categorization of schools of thought to differentiate the varying fields of study that is present in the field of political risk assessment. This paper analyzes the mitigation strategies that have occurred as a result of political risk assessment and examines how the field approaches macro risk and micro risk assessment techniques.

English

Decision Support Model (DSM) used to identify realistic export opportunities using a subsequent filtering process. The filtering process includes four sequential filters; the first filter includes a political and commercial risk assessment as well as a macro economic analysis. The second filter consists of the detection of possible export opportunities by means of market size and both short- and long-term market growth. The third filter identifies realistic export opportunities utilising a market accessibility index, which includes the following parameters. The fourth and final stage of the filtering process involves the analysis of the identified export opportunities in terms of their ranking according to accessibility and performance. The DSM identified the top seven export opportunities; these include in descending order: The United States of America, Japan, China, Germany, Spain, Thailand and France. Key words: Namibian fish, diversification, Decision Support Model (DSM).

Lack of scientific recordkeeping of disaster incidences: A big hurdle in disaster risk reduction in India

Despite enhanced awareness on various disaster management related issues and mounting disaster induced losses disaster risk reduction is far from getting its due share of attention and resources, particularly in India. This is attributed to (i) departmental inertia, (ii) lacking political foresight and will, (iii) fragmented decision-making authority, (iv) lacking techno-legal regime and non-compliance of what exists, (v) lack of capacity building, (vi) unawareness of the mass, (vii) lacking risk assessment and communication, (viii) missing locally relevant data and examples, and (ix) lack of objective and uniform disaster database. Based upon in depth analysis of the present situation recommended road map for DRR inclusive development includes (i) enhanced focus on mass awareness to ensure voluntary compliance and to do away with political apathy, (ii) comprehensive hazard, vulnerability and risk assessment and communication, (iii) enhanced investment on research and development related to disaster resilient technology and improvising traditional DRR practices, (iv) enhanced investment on capacity building, (v) invoking DRR compliant techno-legal regime and putting in place mechanism for its compliance, (vi) NDMA and SDMA to be provided authority to issue binding guidelines, (vii) institutional mechanism for collecting precise and objective data relating to disaster induced losses. Action on the suggested points is envisaged to streamline DRR interventions in India and help in bringing forth resilience amongst communities.