The term political risk has had many different meanings over time. Broadly the fat tail ian bremmer pdf, however, political risk refers to the complications businesses and governments may face as a result of what are commonly referred to as political decisions—or “any political change that alters the expected outcome and value of a given economic action by changing the probability of achieving business objectives”. A low level of political risk in a given country does not necessarily correspond to a high degree of political freedom. Indeed, some of the more stable states are also the most authoritarian.
Understanding risk partly as probability and partly as impact provides insight into political risk. There are both macro- and micro-level political risks. Macro-level political risks have similar impacts across all foreign actors in a given location. While these are included in country risk analysis, it would be incorrect to equate macro-level political risk analysis with country risk as country risk only looks at national-level risks and also includes financial and economic risks. Micro-level risks focus on sector, firm, or project specific risk. Macro-level political risk looks at non-project specific risks.
Macro political risks affect all participants in a given country. Research has shown that macro-level indicators can be quantified and modelled like other types of risk. For example, Eurasia Group produces a political risk index which incorporates four distinct categories of sub-risk into a calculation of macro-level political stability. This Global Political Risk Index can be found in publications like The Economist. Micro-level political risks are project-specific risks. In addition to the macro political risks, companies have to pay attention to the industry and relative contribution of their firms to the local economy.
An examination of these types of political risks might look at how the local political climate in a given region may affect a business endeavor. To extend the CFIUS example above, imagine a Chinese company wished to purchase a U. A micro-level political risk report might include a full analysis of the CFIUS regulatory climate as it directly relates to project components and structuring, as well as analysis of congressional climate and public opinion in the United States toward such a deal. Thousand Oaks, CA: SAGE Publications, Inc. Political Risk Manageqment: A Portfolio Planning Model”.
Understanding risk partly as probability and partly as impact provides insight into political risk. Level political risks are project, an examination of these types of political risks might look at how the local political climate in a given region may affect a business endeavor. “A Theoretical Perspective on Political Risk” — project specific risks. Level political risk report might include a full analysis of the CFIUS regulatory climate as it directly relates to project components and structuring, political Risk Manageqment: A Portfolio Planning Model”.