Geopolitics and Cross-Border Asset Allocations: How Does Our ICRG Risk Data Shape the Patterns?
Do geopolitical tensions between countries influence the cross-border asset allocation of investment funds? Yes!
In this new Working Paper from the IMF series, using our ICRG data affecting a series of risk metrics (bureaucracy quality, corruption, democratic accountability, government stability, and law and order), the study estimates gravity models and found that investment funds allocate smaller shares of their portfolios to recipient countries that are geopolitically more distant to their country of origin— with geopolitical distance measured by dissimilarity in countries’ voting behavior in the United Nations General Assembly.
The study also found an investment diversion effect: a recipient country attracts additional investments when its source countries get geopolitically more distant to third-party countries. These results are robust to instrumenting geopolitical distance and using alternative distance measures.
This is good material that dovetails some key concepts in the geopolitical literature with well-know economic/trade patterns models in macroeconomics.
It also provides some very valuable information for corporate planning overall and asset allocation stratagems for fund managers.
Simply put: Our data drives.
The PRS Group: Challenging Borders, Challenging Risk
CHRISTOPHER MCKEE, PHD CHIEF EXECUTIVE
Christopher McKee is PRS’ CEO and Owner. An international political economist, global investor, entrepreneur, and author, Chris received his PhD from Queen’s University (Canada) and has been involved in the field of geopolitical risk, limited recourse financing, and private sector development for the past 25 years.
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