Country risk and political risk under investigation – recent trends, prospects, and implications

Abstract

For many years, economic growth has been one the main objectives of economies around the world. Recently, the central focus has diverted from the quantitative to the qualitative approach. Mainstream research acknowledged that institutional quality along with country risk is among the most significant factors that contribute to the achievement of high economic development rates. Country risk is associated with the probability that investors or companies from a certain country will face greater instability or losses and includes financial, economic, and political risks. Lower political risk ranks first in the category of main drives that enable countries to attract more foreign direct investments and allow markets to operate efficiently. This article examined the recent evolutions in terms of the concept and main antecedents of the political risks, considering the current negative disruptions that economies were forced to experience, covering aspects related to health, wars, and economic downturns. The analysis identified that a high political risk negatively impacts demographics, environment, and the health system. The ability of countries to bounce back and develop a strong resilient economy toward adverse shocks depends on the institutional quality and the effectiveness of policymakers, who are responsible for elaborating efficient economic policies.

Keywords

• country risk
• political risk
• sovereign risk
• european union