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Political risk is a complex phenomenon. This complexity has incentivized scholars to take a piecemeal approach to understanding it. Nearly all scholarship has targeted a single type of political risk (expropriation) and, within this risk, a single type of firm (MNCs) and a single type of strategic mechanism through which that risk may be mitigated (entry mode). Yet “political risk” is actually a collection of multiple distinct risks that affect the full spectrum of foreign firms, and these firms vary widely in their capabilities for resisting and evading these risks. We offer a unified theoretical model that can simultaneously analyze: the three main types of political risk (war, expropriation, and transfer restrictions); the universe of private foreign investors (direct investors, portfolio equity investors, portfolio debt investors, and commercial banks); heterogeneity in government constraints; and the three most relevant strategic capabilities (information, exit, and resistance). We leverage the variance among foreign investors to identify effective firm strategies to manage political risk. By employing a simultaneous and unified model of political risk, we also find counterintuitive insights on the way governments trade off between risks and how investors use other investors as risk shields.

Does the rise of foreign direct investment (FDI) in Central and Eastern Europe lead to supraterritoriality? The analysis of FDI flows between world investor countries and Central and East European (CEE) hosts between 1989 and 2000 shows that the majority of FDI flows into CEE in this period do not exemplify a trend of undifferentiated transcendence of post-communist borders. Rather, FDI flows continue to be based in territoriality and embedded in existing social relations between investor and host countries: migration and trade flows, historical ties, political alliances, and cultural affinities. Nevertheless, the rhetoric supporting the opening of post-communist countries to FDI is widespread and consistent with the neoliberal credo, which has acquired a supraterritorial character. Ultimately, we see that embeddedness and supraterritoriality co-exist but they manifest themselves for distinct FDI phenomena: the concrete economic practice and the economic rhetoric, respectively.

The rapid growth of foreign private lending to microfinance institutions (MFIs) in the past several years has led to a surprising reversal of roles between government-owned development agencies and private lenders. Development institutions [International Financial Institutions (IFIs)] are concentrating their loans in the strongest MFIs, leaving private lenders to look for opportunities among smaller, riskier borrowers. Development institutions are “crowding” private lenders out of the best MFIs.

Since World War II, the United States has played a leading role in development assistance in both volume of funds and role. Though the largest bilateral development agency, USAID is somewhat of an outlier in modes of operation, scope and nature of activities, and place within government. This chapter examines the development and character of U.S. foreign assistance. Like others, the United States provides foreign aid for multiple reasons – to relieve suffering and promote long-term economic and social development, to gain favor with allies, to open markets, to help ensure national security. Security and diplomacy do play a large role in U.S. foreign aid, even in basic education. In the context of U.S. internal politics, both humanitarian/development and diplomatic/security rationales have been necessary to sustain public and government support for foreign aid. Still neither rationale has prevailed; the budget is split nearly in half. The need for a humanitarian rationale may be characteristic of U.S. foreign assistance along with the emphasis on democracy. Yet these programs have sometimes been distorted by the diplomatic rationale and the security needs of the state. Many of these tensions and the constant need to justify foreign aid likely derive from the perennial periodic isolationist thread of U.S. politics, the particular adversarial institutions of U.S. policymaking, and the transparency which leaves these processes open. Even so, U.S. development assistance has played a prominent role in the trajectory of international development post-World War II, and has worked to address many of the great challenges of the times.