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Innovative methods in assessing political risk for business internationalization

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  • Rios-Morales, Ruth
  • Gamberger, Dragan
  • Smuc, Tom
  • Azuaje, Francisco
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    Abstract

    Political risk assessment, together with portfolio analysis, has become an important part of international business investment decision making. In this paper, by using different knowledge discovery techniques, we attempt to assess the relevance and actionability of [`]good governance' indicators in political risk assessment. For that purpose, we have integrated good governance indicators data with political instability classification from the Political Instability Task Force (PITF) research. From this study, two models that capture the intuitive reasoning of investors have been developed. The usefulness of the models has been evaluated by comparison with factual investment data. Our findings suggest that quantitative indicators of good governance may provide the basis for accurate and meaningful models for the assessment and prediction of political risk.

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    Bibliographic Info

    Article provided by Elsevier in its journal Research in International Business and Finance.

    Volume (Year): 23 (2009)
    Issue (Month): 2 (June)
    Pages: 144-156

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    Handle: RePEc:eee:riibaf:v:23:y:2009:i:2:p:144-156

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    Web page: http://www.elsevier.com/locate/ribaf

    Related research

    Keywords: Political instability Investment risk Data mining Statistical analysis Good governance Machine learning;

    References

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    1. Oetzel, Jennifer, 2005. "Smaller may be beautiful but is it more risky? Assessing and managing political and economic risk in Costa Rica," International Business Review, Elsevier, vol. 14(6), pages 765-790, December.
    2. Stephen J Kobrin, 1979. "Political Risk: A Review and Reconsideration," Journal of International Business Studies, Palgrave Macmillan, vol. 10(1), pages 67-80, March.
    3. Kennedy, Charles Jr., 1988. "Political risk management: A portfolio planning model," Business Horizons, Elsevier, vol. 31(6), pages 26-33.
    4. Luiz de Mello, 1997. "Foreign direct investment in developing countries and growth: A selective survey," Journal of Development Studies, Taylor & Francis Journals, vol. 34(1), pages 1-34.
    5. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
    6. Shang-Jin Wei, 1997. "How Taxing is Corruption on International Investors?," NBER Working Papers 6030, National Bureau of Economic Research, Inc.
    7. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
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