Leader Turnover, Volatility, and Political Risk

On average, democracy reduces political risk for foreign investors, yet this emphasis on regime type obscures the tremendous variation within autocracies. Moreover, conventional explanations emphasizing the role of checks and balances are ill-suited to explain why some autocracies, which typically lack these features, are associated with such low-risk environments. This article explains variations in political risk by emphasizing the role of autocratic leader replacement. Autocrats select from a heterogeneous mixture of private goods to appease narrow-winning coalitions. Leader replacement in such regimes is, therefore, associated with new winning coalitions and new private goods. When turnover is frequent, the policy environment becomes more volatile and political risk increases relative to autocracies with more stable leadership. Importantly, the risk-increasing effect of turnover holds for both irregular and rule-bound leader transitions in autocracies. These predictions are strongly supported through cross-national quantitative analysis employing a new measure of leaders’ risk of political replacement. En general, la democracia se reduce el riesgo politico para los inversores extranjeros, sin embargo, este enfasis en el tipo de regimen menosprecia la tremenda variacion dentro de las autocracias. Ademas de esto, las explicaciones convencionales que enfatizan el papel de los contrapesos entre diferentes poderes son inadecuadas para explicar por que algunas autocracias, que normalmente carecen de estas caracteristicas, se asocian con entornos de bajo riesgo. Este documento explica las variaciones en el riesgo politico, haciendo hincapie en el papel de la sucesion del lider autocratico. Los lideres autocratas seleccionan de una mezcla heterogenea de bienes privados para apaciguar a las coaliciones que ganan por margenes estrechos. El reemplazo del lider autocrata en tales regimenes es, por tanto, asociado a nuevas coaliciones ganadoras y los nuevos bienes privados. Cuando la rotacion de lideres es frecuente, el ambiente politico se vuelve mas volatil y el riesgo politico aumenta en relacion con las autocracias con un liderazgo mas estable. Es importante destacar que el aumento en el riesgo debido a una alta rotacion es aplicable tanto transiciones irregular como transiciones determinadas por el lider autocrata. Estas predicciones estan fuertemente apoyadas a traves de un analisis cuantitativo transnacional que emplea una nueva medida de riesgo de sustitucion politica del lider autocrata. Related Articles Hiroi, Taeko, and Sawa Omori. 2013. “Causes and Triggers of Coups d'etat: An Event History Analysis.” Politics & Policy 41 (1): 39-64. http://ips.sagepub.com/content/33/2/131.refs Davis, G. Doug. 2011. “Regional Trade Agreements and Foreign Direct Investment.” Politics & Policy 39 (3): 401-419. http://onlinelibrary.wiley.com/doi/10.1111/j.1747-1346.2011.00296.x/abstract Khodr, Hiba, and Isabella Ruble. 2013. “Energy Policies and Domestic Politics in the MENA Region in the Aftermath of the Arab Upheavals: The Cases of Lebanon, Libya, and KSA.” Politics & Policy 41 (5): 656-689. http://onlinelibrary.wiley.com/doi/10.1111/polp.12033/abstract Related Media United Nations Conference on Trade and Development. 2012. World Investment Report 2012: Toward a New Generation of Investment Policies. Geneva. http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=171 Delcredere Ducroire. 2013. “Country Risks.” http://www.delcredereducroire.be/en/country-risks/