Dy­nam­ic polit­ic­al risk and in­ter­na­tion­al in­vest­ment

Vera Kunczer and Thomas Lindner, together with Jonas Puck from WU Vienna, investigate in a new publication published in the Journal of International Management how firms' decisions on where to expand as a function of expectations of how political risk in a host country will change in the future. Their study finds that:
 

• Decreasing political risk in the past makes a country more attractive for foreign investment.
   
• Complex past political risk patterns due to coups, elections, or disruptions weaken this positive effect.
   
• Prior host-country experience helps firms navigate complex political dynamics and make better-informed location choices.

These findings imply that firms consider not only the current political risk but also its past and expected trends when choosing investment locations. And importantly, non-linearly developments in risk reduce the relevance of linear patterns.