FOREIGN-INVESTMENT, POLITICAL RISK AND INSURANCE

Autor(en): BROLL, U
Stichwörter: Business & Economics; Economics; EXPROPRIATION; Mathematical Methods In Social Sciences; Social Sciences, Mathematical Methods; UNCERTAINTY
Erscheinungsdatum: 1993
Herausgeber: LUCIUS LUCIUS VERLAG MBH
Journal: JAHRBUCHER FUR NATIONALOKONOMIE UND STATISTIK
Volumen: 211
Ausgabe: 3-4
Startseite: 324
Seitenende: 330
Zusammenfassung: 
In addition to exchange rate, price and interest rate risk, political risk plays an important role for multinational firms. In economics political risk refers to uncertainty over property rights. If a host country government can expropriate either legal title to property or a stream of income it generates, then political risk exists. In this study the stream of income stems from firm-specific capital invested and allocated to a foreign country. Then political risk exists if the transfer of profits may be constrained by the host country government. One possibility to limit political risk is insurance. In most of the industrialised countries political risk insurance are offered. The main result is that in the presence of insurance markets international allocation and production decisions are independent of both the expectations and the degree of risk aversion of the direct investing multinational firm. Thus providing international firms with an insurance device reduces the political risk and promotes international capital mobility.
ISSN: 00214027

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