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Measuring Risk: Political Risk Insurance Premiums and Domestic Political Institutions

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Author Info

  • Nathan M Jensen

    (Washington University)

Abstract

There is a renewed interest in political science on how political risk affects multinational corporations operating in emerging markets. Most existing studies suffer from data problems where researchers can only offer indirect evidence of the relationship between political institutions and political risk. In this paper I utilize a new data resource to explore how domestic institutions affect political risks for multinationals. Utilizing price data from political risk insurance agencies I test how domestic political institutions affect the premiums multinationals pay for coverage against 1) expropriations and contract disputes and 2) government restrictions on capital transactions. I find that constraints on politicians lead to marginally lower expropriation and transfer risks. Democracy, on the other hand, greatly reduces expropriation risk but has no impact on transfer risk.

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File URL: http://128.118.178.162/eps/if/papers/0512/0512002.pdf
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Bibliographic Info

Paper provided by EconWPA in its series International Finance with number 0512002.

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Length: 45 pages
Date of creation: 09 Dec 2005
Date of revision:
Handle: RePEc:wpa:wuwpif:0512002

Note: Type of Document - pdf; pages: 45
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Web page: http://128.118.178.162

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Keywords: FDI; political risk; expropriation; insurance;

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References

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Cited by:
  1. Marina Azzimonti & Pierre-Daniel G. Sarte, 2007. "Barriers to foreign direct investment under political instability," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 287-315.

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