Politics and International Investment: Measuring Risks and Protecting Profits

Politics and International Investment: Measuring Risks and Protecting Profits

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‘This path-breaking book joins transaction cost economics and positive political theory to uncover the risks and work out the organizational ramifications of international investments. Academics, public policy analysts, and the business community all have a stake in these issues. Henisz should be read with interest and profit (variously defined) by all three.’

- From the foreword by Oliver E. Williamson

In this volume Witold Henisz provides readers with a new set of tools for assessing the extent of political and regulatory risk faced by investment projects in a given country. Henisz measures political risk directly by examining the structure of a nation’s political institutions and the preferences of the actors that inhabit them. He also provides a critical analysis of the effectiveness of one common political risk mitigation strategy, partnering with a local firm.

Neither democracy (Russia), political stability (Zaire, until recently) nor low country risk scores (Indonesia in1995) are sufficient for investor security. The failure of each of these measures points to the need for more objective methods of measuring risk. After implementing tests to show the validity of 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.

Policymakers, investment managers, business professionals and scholars will find this book extremely useful.