Political risk, like all other risks, has an adverse effect on any economy.
Even though other forms of risk, such as economic risk and financial risk
have been studied quite extensively, political risk has not received much
attention owing primarily to lack of data. The current paper attempts to
study a negative and significant relationship between political risk and
Foreign Direct Investment (FDI), accounting for 94 countries over a span
of 24 years from 1986-2009. It was found that most of the political risk
indicators have a negative relationship with FDI for the world as a whole
and also, the high-income countries but the relationship was the strongest
for the upper middle-income countries.