Countries with Low Political Risk & Why

1071 Words5 Pages
Political Risk In order to discuss the five countries with the least political risk for foreign investors it is important to define political risk. Broadly defined, political risk is the probability of interference in the host country investment operations by political forces or events. Political risk is primarily determined by uncertainty over a variety of issues ranging from the actions of governments and political institutions to that of minority groups [ MIGA, World Investment and Political Risk 2009]. For the foreign investors political risk a simplified definition is "the risk or probability of occurrence of some political event that will change the prospects for the profitability of a given investment" [Wafo, 1998]. Foreign investors must carefully, weigh the dangers and potential losses incurred by investing in politically unstable countries. Therefore, political risk and has become grown in importance as a result of globalization of capital markets. In this paper I will describe different factors affecting political risk and the countries that have fared well. Foreign direct investment (FDI) is interconnected with political risk. The relationship among the foreign direct investment inflows is indicative of a country’s political stability. FDI inflow performance has consistently positive relationships with th3 level of corruption of government, while negative relationships with the political rights. Host countries with the least political risk, have larger FDI inflows and have achieved those high ratings because of the stability of their local economy, and absence of high inflation, an absence of volatile and changing government regulation, (stable policies) free transfer of profit from the host country and, the ability to sell or liquidate investment for the foreign investor. In order to attract more foreign investments host countries will do well to
Open Document