Asia at risk: the impact of methodology in forecasting

States that foreign investors have clamoured into Asia in the 1990s hoping to tap into the spectacular economic growth, but have often done so without awareness of existing or likely future political and social conditions which could affect their investments and business operations. Adds that political risk insurance is available from agencies such as the World Bank’s MIGA or the US government’s OPIC, but projecting needs for such insurance has not been a consistent practice. Reveals that business publications, such as The Economist, and firms such as Business Environment Risk Intelligence, Inc. (BERI), provide regular projections of political risk based on a variety of observed political and social variables. Examines choice of these variables in an Asian context and assesses statistically the forecasting capability of The Economist and BERI models. Finds that the existence of underlying theory makes a positive difference in the ability of the models to forecast correctly and to provide useful advice to foreign investors. Indicates that both models include variables representing conditions that clearly indicate future trouble for investors. Shows that, with some revisions, existing models of political risk can be useful in guiding investment and trade.