Catastrophic events like the Asian financial crises are infrequent, however for political scientists and particularly for foreign investors they personify the on-going problem of assessing accurately the macro-political and regulatory environments of nation-states. As political scientists have long recognized, the institutional structures of nation-states matter; governance systems, regulatory regimes and their norms are centrally important to the functioning and well-being of national economies. Weak institutions with poor capacity beget poor market outcomes, increase market volatility and political risk, reduce foreign investment and depress economic activity.
Despite the emphasis placed on governance and capacity building by leading international organizations since the Asian financial crisis, the risk, capacity, probity and transparency factors associated with various regulatory regimes, political institutions and governance systems in Asia remain poorly mapped. Even more curiously, country and political risk assessment systems remain equally weak, and with no real innovation, in the wake of the assessment failures of the ratings agencies. As a result, for foreign investors, multinational-enterprises, and the great sums of global capital now invested in Asia, assessing country and political risk rests, by and large, on ad-hoc, highly problematic and demonstrably flawed methodological approaches.
Given this background, the Project on Risk and Regulation aims to overcome these problems by developing a new assessment mechanism to evaluate the political and regulatory risk environment of Asia’s economies. The project has two interrelated goals: to better understand the institutional and regulatory characteristics, and operating parameters of regulatory regimes and their associated political institutions in some of Asia’s leading industry areas; and to assess the relationship between regulatory regimes and the incidence of risk as it impacts specific industry sectors and individual business enterprises. Consequently, the Project seeks to surmount the problems associated with conventional macro sovereign risk assessment methodologies by developing a novel risk-analysis system situated at the industry sector level that enables a more accurate mapping of institutional risk incidences for foreign direct investment.
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