Determinant Effects of Political and Economic Factors on Country Risk: An Evidence from the EU Countries

Abstract

The paper deals with an analysis of political and economic factors influencing the country risk. We examinate economical and political factors that are related to the country risk. We provide assessment based on country the economic and financial difficulties that countries face, as well as on the investment environments. At the beginning of the paper we provide the framework for understanding the nature of country risk, we discuss ideas of renowned authors from different perspectives in regard to political and economic variables that might affect country risk. The main contribution of this paper is an analysis consisting of testing the significance of selected political and economic factors on the risk of selected European countries based on an econometric model using panel regression. We conclude the GDP per capita, inflation, unemployment, gross government debt, current account balance, international investment position and political control index of corruption and the rule of law are the main factors influencing country risk in our analysis. Based on the regression analysis we select groups of countries with highest similarieties and analyse them in detail.

An assessment of the interrelations between country risk, economic growth and good governance: The case of the Visegrád four

“…A one percentage change in GDP could lead to a 0.31% increase in the CRI. Similar results were achieved by authors such as Glova et al (2020) in European countries and by Montes and Tiberto (2012) in Brazil. Verma and Verma (2014) also estimate that economic performance and good governance positively impact country risk in many Asian countries.…”

“…They should develop their stock markets, leading to more robust credit markets, leading to economic growth. Glova et al (2020) investigated the impact of political and economic factors on country risk in selected European countries using an econometric panel model. The results conclude that economic factors such as GDP, unemployment, inflation, government debt, and political and governance factors such as corruption and the rule of law impact and influence country risk.…”

Geospatial multi-criteria analysis for identifying optimum wind and solar sites in Africa: Towards effective power sector decarbonization

“…Foreign investments involve supplementary risks that are not present in domestic investments. These risks are referred to as country risks and incorporate risks that emerge as a consequence of differences in economy, policy and socio-political settings across states [50]. The OECD's country risk classification is used as a proxy for political stability, and captures the transfer/convertibility risk associated with the investment structure in place as well as cases of force majeur due to war, civil disturbance, flood and earthquake [51].…”

The Impact of Institutional Environment on Risk Assessment

“…'Components of economic freedom that contribute most to the reduction in crash risk is the level of free trade and, to some extent, the strength of property-right protection' (Blau, 2017, p. 22). Hassan et al (2019) and Glova et al (2020) focused on measuring political risks and their effect. Using a panel regression of the significance of the influence of economic and political factors on the riskiness of selected EU countries, Glova et al (2020) defined the factors that most influence the country risk assessment are GDP p.c., inflation, unemployment, gross government debt, current account balance, international investment position and political control index of corruption and the rule of law.…”