MODELS OF POLITICAL RISK FOR FOREIGN-INVESTMENT AND TRADE - AN ASSESSMENT OF 3 APPROACHES

While political risk methods have been used extensively for the last two decades, little has been done to test any of their projections against actual losses. This study compares the 1986 projections of The Economist, Political Risk Services, and BERI against losses incurred in the 1987-1992 period. Discussion focuses on how to determine the extent of losses by foreign investors and on pinpointing the source of those losses. It stresses the connection between theory and profit/loss consequences for businesses and the impact of poorly tested methods on corporate strategic planning.