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Country Risk: A Theoretical and Empirical Analysis with Special Reference to Northern African Economies - Il rischio paese: un’analisi teorica e empirica con particolare riferimento ai paesi del Nord Africa

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  • Chopra, Parvesh K.

    () (International Centre for Development and Performance Management (ICDPM))

Abstract

Investing or trading in a country, whether domestic or foreign, involves some elements of risks and uncertainties depending upon its systemic, economic, financial, political, and business operating environments. Understanding the phenomenon of country risk is enormously vital for global investors in appraising risks versus opportunities of their global investment decisions. It is, therefore, necessary to evaluate countries and select the best and the most suitable one for the purpose of investment or business. Country risk analysis is both an art as well as science. Considering this, the present paper delineates numerous sources of country risk associated with business activities in a prospective country that may inauspiciously affect an initial investment, assets values, cash-flows or profits. It investigates theoretical linkages between country risk and country contestability. Based on systems thinking, structural equation modelling, and multivariate data analysis, this paper succinctly illustrates the theoretical scaffolding of Kanji-Chopra Country Risk Measurement System (KCCRMS). The conceptual notion of the phenomenon of country risk in the KCCRMS is holistic, multidimensional and multidisciplinary. The paper further divulges how critical country risk factors simultaneously intensify country risk in a multiplicative way or may interact producing reciprocal compensatory and attenuating effects. The KCCRMS’s structure, constructs, and relationships have been rigorously tested by means of data derived from various sources for an empirical analysis with special reference to Northern African economies namely Morocco, Algeria, Tunisia, Libya and Egypt. A country risk matrix has been constructed to illustrate the systemic risk, economic risk, political risk, financial risk and operating risk for each selected Northern African economy. Pathway analysis and sensitivity analysis on research questions have been performed for a detailed data analysis and interpretation. The paper constructs a composite country risk index for each country for the ratings of Northern African economies in terms of country risk and using the rating for investment decision making. Results from empirical analysis may be used to pinpoint the ways to minimise various risks of investing in these economies. - Investire o commerciare con un paese straniero, o nel proprio, coinvolge elementi di rischio e incertezze che dipendono dall’operatività sistemica, economica, finanziaria, politica e commerciale del paese stesso. La comprensione del fenomeno del rischio paese è vitale per gli investitori globali che devono valutare il rischio rispetto alle opportunità degli investimenti. Pertanto è necessario valutare i paesi e selezionare il migliore e più adatto allo scopo dell’investimento o del commercio. La valutazione del rischio paese è un’arte e insieme una scienza. Con questo presupposto questo studio delinea diverse fonti di rischio associate alle attività commerciali in un paese, che potrebbero negativamente influenzare un investimento iniziale, il valore dei beni, i flussi finanziari o i profitti. Lo studio analizza le relazioni teoriche tra il rischio paese e la contendibilità del paese stesso. Basato su un approccio olistico, su un modello a equazioni strutturali e su analisi dei dati multivariati, in questo studio viene descritta sinteticamente la struttura del sistema di misurazione del rischio paese di Kanji e Chopra (KCCRMS), nel quale la nozione concettuale del fenomeno del rischio paese è olistica, multidimensionale e multidisciplinare. Inoltre questo lavoro prevede il modo in cui i fattori critici incrementano il rischio in maniera moltiplicativa o come possono interagire, provocando effetti compensatori e di attenuazione reciproci. La struttura del sistema KCCRMS, i suoi effetti e le sue relazioni sono state rigorosamente testate tramite dati derivati da diverse fonti elaborando un’analisi empirica di Marocco, Algeria, Tunisia, Libia e Egitto. È stata costruita una matrice rischio paese per illustrare il rischio sistemico, economico, politico, finanziario e operativo di ogni economia tra quelle selezionate. Sono state realizzate un’analisi del ciclo e della sensitività al fine sia di compiere un’analisi dettagliata dei dati sia di procedere alla loro interpretazione. Questo studio costruisce un indice composito per la classificazione delle economie del Nord Africa in base al rischio paese utilizzando il rating relativo all’investimento. I risultati dell’analisi empirica possono essere impiegati per individuare modalità che consentano di ridurre i vari rischi di investimento in questi paesi.

Suggested Citation

  • Chopra, Parvesh K., 2015. "Country Risk: A Theoretical and Empirical Analysis with Special Reference to Northern African Economies - Il rischio paese: un’analisi teorica e empirica con particolare riferimento ai paesi del Nord ," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 68(1), pages 81-137.
  • Handle: RePEc:ris:ecoint:0747
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    References listed on IDEAS

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    More about this item

    Keywords

    Country Risk; Kanji-Chopra Country Risk Measurement System; Country Contestability; Critical Country Risk Factors; Systemic Risk; Economic Risk; Political Risk; Financial Risk; Operating Risk; Multivariate Modelling; Systems Thinking; Path Analysis;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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