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Does political risk deter FDI from emerging markets?

Laura Gómez-Mera's picture

Investors touring a factory in Canada. Source - Province of British Columbia“Ask anyone you meet on the street whether political risk has risen in the last few years, and you’d likely get a convincing yes,” a high official from Canada’s Export Development Center recently wrote.
 
Investors have always worried about the political landscape in host markets. But it’s true. Concerns over political risk are on the rise.
 
The most recent EIU’s Global Business Barometer shows that the proportion of executives that identified political risk as one of their main concerns increased from 36 percent in 2013 to 42 percent in 2014. MIGA’s Political Risk Survey tells a similar story: 20 percent of investors identified political risk as the most important constraint on Foreign Direct Investment (FDI) in developing economies. Indeed, according to risk management firm AON, political risk is now tenth on the list of main risks facing organizations today and is likely to rise in the ranking in the next few years.
 
With FDI from emerging markets also on the rise, are the concerns of these investors any different?

Sticky Feet: How Workers’ Reluctance to Move Can Reduce Gains from Trade

Elizabeth Ruppert Bulmer's picture

When economists think about price shocks, they consider how a change in price will affect the supply and demand of a product. But when that product is human – i.e., a worker – interpreting the impact of a price – or wage – shock is no longer cut and dried.

Just consider: If your wage was suddenly cut, would you remain in your current job despite the loss in earnings? Would you quit immediately, or look for a new job while continuing to work? How long could you survive on your lower earnings? Would you be forced to sell your house or other assets? How much money and effort would you invest in finding a better job? Would your personal circumstances allow you to take a better job in a distant location? Would you uproot your family for this job? 

Boosting Malaysia's Performance in the World Cup of Trade

Miles McKenna's picture
Trade issues can seem quite complex. Sometimes it's nice to boil concepts down to simpler terms-- terms more familiar, more beloved by many of us. So, let's talk futbol.

The latest Malaysia Economic Monitor reviews aome key developments in 2013, while also providing in-depth analysis of strutural trends in the country's trade competitiveness. But how competitive is Malaysia (or its trade) on the football pitch? Check out the video below to find out.
Malaysia's Trade (in Futbol Terms)

Notes From the Field: Managing Oil Wealth in Brazil

Amir Fouad's picture

About "Notes From the Field": With this occasional feature, we let World Bank professionals who are conducting interesting trade-related projects around the globe explain some of the challenges and triumphs of their day-to-day work.

Pablo FajnzylberThe interview below is with Pablo Fajnzylber, who recently became sector Manager for the Poverty Reduction and Economic Management (PREM) network in East Africa. The interview took place while Mr. Fajnzylber was Lead Economist and Sector Leader for PREM in Brazil. Prior to that, he worked at the Chief Economist’s Office for the Latin America and Caribbean region, the Finance and Private Sector Development Department for the same region and the Bank’s Development Economics Research Group. Mr. Fajnzylber has published extensively on a variety of development topics, including various books and articles in professional journals on issues related to growth, international trade, informality, crime, workers’ remittances, private sector development and climate change.

Rise of Non-Tariff Protectionism amid Global Uncertainty

A troubling phenomenon is occurring in large, emerging economies: the gates are closing. Governments, skittish about global economic trends, are introducing new policies to limit imports and exports. The aim is to protect domestic industry in tough times, but the tools they are using threaten to make their economic problems worse.

A December World Bank analysis documents a trend of creeping protectionism in countries such as Argentina, Brazil and Indonesia – all countries with burgeoning industry. Instead of tariffs, other, more indirect policies are being used to hinder free commerce between countries. The Bank analysis, based on World Trade Organization (WTO) monitoring reports and data from the Global Trade Alert, a network of think tanks around the globe, found that the number of non-tariff measures (NTMs) –including quotas, import licensing requirements and discriminatory government procurement rules –showed an increasing trend in the first two years post-2008, and rose sharply in 2011. India, China, Indonesia, Argentina, Russia and Brazil together accounted for almost half of all the new NTMs imposed by countries world-wide.