Politics and International Investment

In this collection Witold Henisz provides readers with a set of tools for assessing the extent of political and regulatory risk faced by investment projects in a given country. Political risk is measured directly by examining the structure of a nation's political institutions and the preferences of the actors that inhabit them. The author also provides a critical analysis of the effectiveness of one common political risk mitigation strategy, partnering with a local firm. Democratic Russia, stable Zaire (until recently) and the low perceived risk of Indonesia in 1995, and their subsequent instability, all point to the need for more objective measures of risk than are currently available. After implementing tests to show the validity of the new measures, Henisz analyzes the efficacy of partnering with local firms. The results of this analysis suggest that partnership will often introduce more hazards than it solves. This framework for measuring risk and analyzing the efficacy of risk-mitigating strategies could easily be extended to make it applicable on a project-by-project basis.