Rethinking Political Risk: History and Prospects

Purpose: We study the research question on the theory, policy and prospects of political risk in international economics. Design/Methodology/Approach: We follow a qualitative political economy analysis due to the interdisciplinary nature of the question, and not only to the difficulties of measuring it. Political risk can be an alteration or introduction of prohibitive taxation, embargoes, civil wars, disbanding of licences, abduction of personnel or their families, expropriation and any government actions that dissolve an agreement. The study introduces a few measurements of political risk. Findings: The study indicates the difficulties the definitions have innately. It argues that the measurements are subjective and far from satisfactory in determining the extent of value of political risk. Moreover, the subjective models use quite different approaches to determine the risk. The problem is even more acute in the era of financialization, radical uncertainty and the digital revolution. Today, business planning is not only difficult (by its very nature long term) but also dominated by the operating framework of the global capital market shaped by the technocrats of independent central banks and fund managers who impose discipline on governments in their "market". The prospects for political risk seem to depend on democratization, especially of the finance. Practical Implications: Since there is no theoretical model for the interpretation of political risk, it is not scientifically valid for businesses to predict it within the framework of (mainstream) economics alone. Hence, the limitation of quantitative answers. Strong interdisciplinary gnoseology with a focus on political analysis and social change are necessary as a complement to economics and institutions for rational business decisions. Originality/Value: The paper contributes to the resurgent debate on the literature of economic planning.