Political Risk: A Review and Reconsideration
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environment,(2) when they are difficultto anticipateand (3) when they result from political change. To constitute a 'risk'these changes in the business environmentmust have the potentialfor significantlyaffectingthe profitor othergoals of a particularenterprise.(p. 7) The concepts of discontinuity and direct effects on the enterprise are central to Robock's definition. He notes that while all political environments are dynamic, changes which are gradual and progressive and are neither unexpected nor difficultto anticipate do not constitute political risk. He then clearly differentiates between political instability and political risk: "... political fluctuations which do not change the business environment significantly do not represent risk for international business .... Political instability, depending upon how it is defined, is a separate although related phenomenon from that of political risk" (p. 8). Robock also distinguishes between "macro risk" where political events result in constraints on all foreign enterprise (for example, Cuba in 1959-1960) and "micro risk" which affects only "selected fields of business activity or foreign enterprises with specific characteristics" (p. 9). Root [50] defines political risk in terms of the: ... possible occurrenceof a politicalevent of any kind(such as war, revolution,coup d'etat, expropriation,taxation, devaluation,exchange controls and importrestrictions)at home or abroad that can cause a loss of profitpotentialand/or assets in an internationalbusiness operation"(p. 355). Root emphasizes the difference between uncertainty and risk (drawing both normative and positive implications), attempts to separate political from other environmental risks, and develops several useful taxonomies. In a second paper [51] Root concludes that the distinction between political and economic risks breaks down at the experiential level as a result of the "... interdependence of economic and political phenomena: [p. 3]. Still, an attempt at that distinction is made; [A]n uncertainty is political if it relates to (a) a potential government act. . ., or (b) general instability in the political/social system" (p. 4). Root also categorizes political uncertainties in terms of the manner in which they affect the firm: (1) transfer-uncertainty about flows of capital, payments, technology, people, etc.; (2) operational-uncertainties about policies that directly constrain local operations; and (3) ownership/control-uncertainties about policies relating to ownership or managerial control (p. 357). He suggests that transfer and operations uncertainties flow primarilyfrom political/economic events and ownership/control from political/social. Haendel and West [24] focus upon a distinction between risk and uncertainty: between "the probability of occurrence of an undesired political event[s] and the uncertainty generated by inadequate informa
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