Country Risk Research Articles

The impact of financial sanctions on financial risk of target countries

ABSTRACT By using panel data of 181 countries of which 83 countries have been subjected to financial sanctions from 1980 to 2020, this article employs a Time-Varying difference-in-differences (DID) model and explores the nexus between financial sanctions and financial risk. This article finds firstly that financial sanctions significantly increase the fin ancial risk of target countries. Second, we conclude that financial sanctions increase the financial risks of target countries by limiting international capital flows and foreign aids. Third, financial sanctions affect the risk for foreign debt, risk for debt service and risk for international liquidity significantly, however financial sanctions have no impact on risk for exchange rate stability and risk for current account. Last but not least, financial sanctions increase the financial risk significantly for countries with low political stability and financial development level, however the effect is not significant in countries with high level of political stability and financial development. In the light of this, our research should help policymakers in many nations develop valuable policies from the perspective of international politics and finance.

Elimination of Discrimination Against Women and the African Continental Free Trade Area

Abstract Article 4 of the Protocol on the Free Movement of Persons, provides against the discrimination of nationals of state parties to the treaty based on their sex. The discrimination against women extends to stereotypes that often put them at risk in other countries where they might be domiciled. And this is further worsened by the fact that many of these women are not informed about their rights. The study would focus on the issues that result from the discrimination against women in Africa and how this would impact women’s economic capacity to trade within the African Continental Free Trade Area (AfCFTA). This research engaged the doctrinal approach and the Realistic Conflict Theory. Content analysis was done on the Agreement Establishing the African Continental Free Trade Area Protocol on Trade and Services, the Protocol on the Free Movement of Persons, institutional reports, and journal articles. This study concluded on the opportunities that the inclusive approach of the AfCFTA could bring, if states could leverage on the AfCFTA through states mechanisms to provide equitable means for women to thrive in an export sector, culturally inclined to constrain gender inclusion.

Financial Liberalization and Banking Risks in the Waemu Zone: Do Fintechs Matter?

This study aims to examine the role of fintech development in the relationship between financial liberalization and banking risks in WAEMU countries. To do this, we used macroeconomic data from WAEMU countries, except of Guinea Bissau, due to lack of data, over the period 2011-2021. Methodologically, we use the PCSE (Panel-Corrected Standard Error) method of Beck and Katz (1995). The results revealed that fintechs amplify the banking risk reduction effect of financial liberalization. In terms of economic policy implications, the study suggests that the authorities should step up the process of financial liberalization and pay particular attention to adequate regulation of fintechs.

Capital Control Taxes in an Emerging Market Economy

Historically, Emerging Markets (EMs) that own foreign debt and exhibit a high degree of dollarization have demonstrated vulnerability to a range of both real and financial shocks. Governments often use a range of capital control measures, particularly in nations burdened with external debt, with the aim of mitigating sudden swings in both inflows and outflows of capital. These policies are implemented to lessen exchange rate volatility and prevent dollarization. This study employs second moments analysis, impulse response functions and the welfare analysis to investigate the impact of a tax policy that restricts international capital flows on several macroeconomic variables in an emerging economy. A dynamic stochastic general equilibrium (DSGE) model is employed to examine the impact of the tax imposed on foreign borrowing on the economy, including both real shocks such as technology and growth, as well as financial shocks such as country risk premium. The findings of the study indicate that capital control taxes have a diminishing effect on the variability of significant macroeconomic variables, such as investment and consumption, when imposed at lower levels. Conversely, these taxes exhibit a stabilizing impact on the volatility of the trade balance-to-output ratio when implemented at higher levels. Moreover, quantitative evidence reveals that country risk premium shocks exert a substantial influence on variations in both the trade balance-to-output ratio and the level of investment, accounting for around 25% and 50% of the fluctuations, respectively. Finally, the existence of such a taxation enhances the intertemporal utility function at the steady state and reduces its volatility in the case of technology and growth shocks.

Beyond borders: Assessing the influence of Geopolitical tensions on sovereign risk dynamics

We assess the impact of geopolitical risk and world uncertainty on the sovereign debt risk of 26 European Economies during the period 1984–2022, through the implementation of OLS-Fixed Effects regressions and the Generalized Method of Moments (GMM). We find that geopolitical tensions and global uncertainty in border countries contribute to the rise of European country's sovereign risk as measured by 5- and 10-year Credit Default Swaps (CDS) and bond returns. Moreover, this interconnection is more pronounced during turbulent times such as the subprime crisis. Lastly, we found that geopolitical tensions in other country’ groups such as South America and Asia have a significant impact on the government risks of European countries.

Is tourism conducive to green growth? An investigation of the role of tourism-based economic expansion in the nexus of leisure tourism and business tourism

PurposeThe gradual expansion of the tourism sector is raising concerns about whether tourism-based economies are conducive to supporting green growth. Hence, the current study aims to analyze the direct impact of tourism motives on green growth along with the indirect impact of tourism-based economic expansion while controlling for country risk and renewable energy.Design/methodology/approachAn unbalanced panel data for a sample of 21 countries comprising OECD and non-OECD economies are employed for the analysis.FindingsRegression results reveal that leisure tourism (LT) significantly and positively influences CO2 intensity compared to business tourism (BT). Propensity score matching results show that the most traveled tourist destinations contribute more to CO2 intensity than those less traveled. Mediation analysis by employing Baron and Kenny’s three-step regression, Sobel’s test and Monte Carlo test shows that tourism-based economic expansion significantly mediates between the nexus of LT and CO2 intensity.Practical implicationsResults of the study provide useful practical implications for sustainable economy and green growth. It recommends to mitigate the challenges of LT, reducing the negative impact and to harness the potential of BT, enhancing the positive influence, through various policies and practices.Originality/valueThis study is the first to examine the impact of LT and BT on green growth, to explore the role of destination popularity and the mediating role of tourism-based economic expansion in this relationship.

The Implication of Political Risk and Specific Macroeconomic Variables on Total Revenue in Tourism Industry

Political risk is one factor that influences tourism performance as a tourist is more sensitive to the hosting country’s political environment. In addition, to the effect of country risk on the tourism industry, the global economy has recently experienced severe shocks due to high inflation rates, political risk, and currency volatility. This paper aims to investigate the implications of political risk, inflation, and exchange rate volatilities on tourism revenue in South Africa. A sample of 144 monthly data was used to assess both long-run and short-run relationships amongst the study variables using the ARDL cointegration and error correction model approaches to achieve the study objective. Results indicated that political risk, inflation rate, and exchange rate volatility influence long-term revenue changes in the tourism industry. In contrast, real effective exchange rates and inflation significantly impact total revenue in the tourism sector. The findings also indicated that political risk has no short-term effect on tourism revenue. Based on these findings, the study recommends that the country's political stability increase, increasing the number of tourist arrivals and resulting in growing revenue for the tourism industry in S.A. Additionally, the South African reserve bank should revise its exchange-rate pegging, monetary targeting, and inflation targeting to reduce the effects of inflation on tourism revenue.

Immigrant threat, perception of unsafety, and political articulation of immigration and multiculturalism in European countries

A large body of work has examined the relationship between population composition and risk of victimization. Past research has also suggested that the nature of political rhetoric may have profound impacts on perceived threat, fear of crime, and moral panic. This study constitutes the first attempt to examine the relationships between the negative political articulation of both immigration and multiculturalism by extreme right-wing parties and the perception of unsafety risk in European countries. We employ data from the 2018 European Social Survey (ESS), which we merge with data from the Manifesto Project Dataset, a comparative dataset on political statements. The results reveal that individuals who reside in countries with higher levels of negative political articulation of immigration and multiculturalism express greater perceived unsafety. The results also show that higher levels of perceived immigrant threat amplify the relationship between negative political articulation of immigration and perceived unsafety. Finally, news exposure amplifies the effect of the negative political articulation of immigration on the perception of unsafety when perceived immigrant threat is higher. Our findings underscore the importance of the political context and the potential of political elites to shape public perceptions, including the perception of unsafety.

High SARS-CoV-2 incidence and asymptomatic fraction during Delta and Omicron BA.1 waves in The Gambia

Little is known about SARS-CoV-2 infection risk in African countries with high levels of infection-driven immunity and low vaccine coverage. We conducted a prospective cohort study of 349 participants from 52 households in The Gambia between March 2021 and June 2022, with routine weekly SARS-CoV-2 RT-PCR and 6-monthly SARS-CoV-2 serology. Attack rates of 45% and 57% were seen during Delta and Omicron BA.1 waves respectively. Eighty-four percent of RT-PCR-positive infections were asymptomatic. Children under 5-years had a lower incidence of infection than 18-49-year-olds. One prior SARS-CoV-2 infection reduced infection risk during the Delta wave only, with immunity from ≥2 prior infections required to reduce the risk of infection with early Omicron lineage viruses. In an African population with high levels of infection-driven immunity and low vaccine coverage, we find high attack rates during SARS-CoV-2 waves, with a high proportion of asymptomatic infections and young children remaining relatively protected from infection.

Understanding the Factors That Influence Foreign Direct Investment in Turkey: Exploring the Impact of Country Risks and Geopolitical Risk

The primary objective of this study is to investigate the determinants of foreign direct investment, with a specific focus on per capita GDP (GDP), alongside various risk factors including economic risk (ER), financial risk (FR), political risk (PR), and geopolitical risk (GPR), in the context of Turkey. This investigation employs an innovative wavelet methodology to analyze the relationships among these variables. The empirical analysis entails the application of wavelet coherence, as well as multiple wavelet coherence (MWC) and partial wavelet coherence (PWC) techniques, to evaluate the strength and significance of relationships between different time series while considering the influence of other related time series. Utilizing quarterly data spanning from 1988Q1 to 2020Q4, this study seeks to fill a gap in the existing literature by examining the nexus between these factors in both time and frequency domains, a novel approach in this field. The findings from the wavelet coherence analysis reveal that GDP, PR, FR, and ER positively impact FDI inflows, whereas GPR exerts a negative influence across various time and frequency intervals. Moreover, the outcomes of MWC and PWC analyses underscore the significant effects of the control variables on the relationships under investigation. Based on these findings, the study puts forth noteworthy policy implications aimed at fostering a more conducive environment for FDI in Turkey.

Can Sovereign Green Bonds Accelerate the Transition to Net-Zero Greenhouse Gas Emissions?

This paper focuses on sovereign green bonds issued in Europe. By issuing green bonds, European governments commit themselves to realizing environmentally friendly projects and encourage other entities, including private-sector ones, to do the same, thus increasing further domestic investments in addressing climate change. However, considering that governments could pursue their sustainable goals by also issuing conventional bonds, this begs the question of why governments should prefer green bonds. A dataset of European sovereign green bonds was retrieved from the Bloomberg Fixed Income database to answer this question. The data cover all European sovereign green bonds issued until the end of 2023. Quantitative analysis confirms the existence of a small green premium for the issuers, representing an incentive to increase the issuances of sovereign green bonds. Furthermore, the government's carbon emissions reduction, the power sector decarbonization, and good climate policies, measured by the Government Climate Risk Score, contribute to further reducing a country's climate risk and consequently the costs of the issuance, thus triggering a virtuous circle which could, in turn, accelerate the transition to net-zero emissions. Despite these benefits, hurdles still exist, and have curbed the development of the market. Examples include divergence between the use of funds raised through green bonds, which should be earmarked exclusively for climate and environmental projects, and the fungibility requirements for proceeds from sovereign debt and fiscal revenues.

ISDS disputes, adjudication and cross-border M&As

ISDS claims are associated with reductions in the likelihood, frequency, and dollar volume of M&As from claimant home countries to respondent states. The host-state expropriation events underlying ISDS claims show no significant effects. The impact of ISDS claims remains after including traditional country risk metrics. Thus, ISDS claims play a unique role in guiding international investment. They prompt foreign acquirers to adopt risk-avoiding strategies, which affect various deal characteristics. We detect strong substantiation effects of investor-win cases and some acquittal effects of state-win cases. The ISDS claims related to direct expropriations and strong-institution respondent states typically produce more striking effects.

Energy access and female labor force participation in developing countries

Access to reliable modern energy services and female economic empowerment are vital for sustainable development of developing countries. While micro-level evidence suggests that energy access can alleviate women's household burdens and enhance their labor market participation, there is little macro-level evidence on this relationship and limited insights on how institutional environments influence it. This study fills this gap using a national-level dataset covering 78 developing countries from 2000 to 2020 and analyzing how access to electricity and clean cooking fuels affects women's labor supply and demand, respectively. Results show that clean energy access increases female labor force participation, particularly in rural areas and small island developing countries. Electricity access reduces female unemployment, especially in urban areas and African countries. Moreover, the importance of country risk and governance capability in shaping this relationship is highlighted. These findings provide valuable insights for enacting synergy policies targeting sustainable development goals.

Assessing Multilateral Development Bank ESG Safeguard Integration with International Sustainability Ratings

In an era where sustainability is paramount, this study critically assesses how multilateral development banks (MDBs) integrate internationally recognized sustainability indicators into their ESG safeguard policies. MDBs have historically incorporated policies to manage environmental and social risks in project financing; yet, protections against negative impacts in developing countries often remain insufficient. On the other hand, several infrastructure sustainability rating systems have been established around the world in recent decades due to economic growth and the importance of controlling environmental impacts associated with the construction sector. The purpose of this study was to analyze whether and how the indicators that these internationally recognized systems use to rate whether a project is sustainable are integrated into these safeguards by using several methodologies, including an analysis of existing documentation, a high-level matrix, and qualitative methods based on co-occurrences using specialized “atlas ti” software. The results show that MDBs’ coverage of financial, governance, and country risks lacks the sustainability focus found in these rating systems. Therefore, this study that concludes MDB safeguards must evolve, balancing comprehensive sustainability parameters and detailed management guidelines and addressing impacts beyond statutory frameworks to encourage stakeholder engagement for more sustainable infrastructure projects.

Assessing the impact of climate-driven water stress on agriculture growth of Pakistan

This study was designed to investigate the role of changing climatic conditions on irrigation water security in Pakistan in order to quantify its implications for agricultural growth and, subsequently, the food security of the populace. Developing nations are highly vulnerable to climate crises, and Pakistan, in particular, is among the most vulnerable countries in this context. Over 60 percent of the population in Pakistan directly or indirectly depends on agriculture, which is extremely sensitive to the water stress triggered by escalating temperatures and unpredictable weather patterns. This study follows a quantitative approach, employing RStudio for mediation analysis where correlation, single-factor regression, and two-factor regression techniques were used to quantify the relation under study. The research findings revealed that the changing temperature and precipitation patterns have triggered an increase in water stress, negatively affecting agricultural growth to 13% from 1975 to 2019. This research is significant because it attempts to quantify the share of climatic changes in Pakistan's decreasing agricultural growth, elaborates on the country's current risks and mitigation potential, and puts forward policy recommendations to promote climate-resilient agricultural practices to facilitate adaptation to shifting climate regimes.

Genetic variations in CYP2A6, CYP2E1, GSTM1, GSTT1 genes and the risk of Nasopharyngeal carcinoma in North African population.

Nasopharyngeal carcinoma (NPC) is a multifactorial malignancy associated with both genetic and environmental factors. Polymorphic deletions of the phase I and phase II genes involved in the detoxification of potential carcinogens may be a risk factor for nasopharyngeal carcinoma. In this study, we investigated the relationship between CYP2E1 (rs3813867), CYP2A6, GSTM1(rs1183423000) and GSTT1(rs1601993659) gene variations and NPC risk in North African countries with the highest incidence of NPC (Morocco, Algeria and Tunisia). and the evaluation of the potential use of these variants as potential biomarkers for NPC management. A total of 600 NPC cases and 545 controls frequency-matched on ethnicity, sex, age and childhood household type, were recruited from three North African countries (Morocco, Algeria and Tunisia) and analysed. Genotyping of CYP2A6 and CYP2E1(rs3813867) was performed by polymerase chain reaction restriction (PCR)-fragment length polymorphism (RFLP) analysis and the GSTM1 (rs1183423000) and GSTT1(rs1601993659) genetic variations were evaluated using the PCR technique. The genotype distributions of CYP2E1(rs3813867), CYP2A6, GSTM1(rs1183423000) and GSTT1(rs1601993659) genotypes did not differ significantly among NPC cases and controls (p>0.05). Furthermore, our data did not reveal any association with smoking and the studied variants, even when the samples were stratified by the duration period of smoking. In this large studied North African population, our findings suggest that the functional CYP2E1, CYP2A6, GSTM1 and GSTT1 variations did not influence NPC susceptibility.

Accepting Timor Leste as an ASEAN member: an act of compassion or a geopolitical necessity?

Timor Leste has been accepted “in principle” as the 11th ASEAN country in 2022, after 11 years of waiting. The 11-year delay is said to be due to skepticism from some Southeast Asian countries, which consider Timor-Leste an “uncertain situation”. Many domestic issues, influenced by the international context, have added to this situation. These include concerns about the consolidation of democratic state institutions in Timor-Leste, as well as the prospects for its short-term economy and internal security. Existing solely on the decline of the Petroleum Fund, which is expected to disappear within a decade, the country risks falling into a budget abyss. As the smallest economy in the entire Southeast Asia region, with the second lowest GDP per capita and high poverty and unemployment rates, Timor Leste has a long way to go to catch up with the remaining members of ASEAN. Despite these economic shortcomings, ASEAN still decided to accept Timor Leste as a new member. This article aims to explain Timor-Leste's credibility in meeting the political, economic and socio-cultural security criteria of the ASEAN pillars. It tries to explain why ASEAN accepted Timor-Leste. Using qualitative methods, the article shows that ASEAN member states have a real incentive to help Timor catch up with other members to avoid its economic collapse. However, the growing geopolitical rivalry between China and the US in the region is perhaps the best explanation for ASEAN's eventual desire to accept Timor Leste's membership application.

How do digital financial inclusion, ICT diffusion, and education affect energy security risk in top energy-consuming countries?

Energy security has become a crucial issue as the world economy depends more and more on energy supplies. In the context of the top energy-consuming nations, this research examines the connection between digital financial inclusion, information and communication technology (ICT), education, and energy security risk from 2011 to 2022. To that end, the study applies the two-stage least squares and system generalized method of moments estimation techniques. According to our study's findings, digital financial inclusion and associated factors, including automatic teller machines, bank branches, debit cards, and electronic payments, mitigate energy security risks. The energy security risks are also reduced due to ICT, education, gross domestic product, and renewable energy production. However, carbon emissions increase energy security risks. These findings suggest that policymakers in top energy-consuming economies should focus on the digital inclusiveness of the financial sector, ICT diffusion, and human capital to increase the opportunities for investment in the energy sector to mitigate energy security risks.

Risks in AGRIGULF's Agricultural Export Settlement Business and Its Management

This paper is primarily a case-based study. It takes Gulf Modern Agriculture Development Co., Ltd (hereinafter referred to as AGRIGULF) as the object of research, and adopts the case study method and field interview method to sort out the company's agricultural products export business and common settlement methods and so on. Through field visits and investigation, data collection, and collation, identify and analyze the risks of the company's agricultural export settlement business. Finally, corresponding risk management suggestions are put forward at four levels, namely, country risk, foreign exchange risk, product quality change risk, and credit risk, which are expected to provide certain references for the sustainable development of China's agricultural export enterprises

Country Risk and Sustainable Development: Mediating Role of Economic Growth

Sustainable development is of great significance for present and future generations. This study examines the mediation role of economic growth on sustainable development through country risk. We have employed the structural equation modeling (SEM) technique to examine the direct and indirect effects of exogenous and endogenous variables. We conducted this analysis using a sample of 24 countries that contributed approximately 65% of global greenhouse gas (GHG) emissions from 2000 to 2019. The empirical analysis based on direct effects establishes that country risk reduces economic growth and sustainable development. Interestingly, the empirics of indirect effects reveal that country risk has a positive and significant indirect impact on sustainable development by using economic growth as a mediator. Moreover, the negative direct effect of country risk on sustainable development is greater than the total negative effect due to the positive indirect effect. Finally, policymakers should minimize country risk to promote economic growth, ensuring environmental, social, and economic sustainability for the safety of current and future generations.