Political Risk in Europe: A Quantitative Index Based on Measures of Corruption, Market Distortion, and the Shadow Economy

Journal of Political Risk, Vol. 1, No. 5, September 2013.

Figure 1: Political Risk in Europe 2012By Stoycho P. Stoychev, Ph.D.

This paper proposes a quantitative index of political risk in Europe, based for the first time on corruption, market distortion, and the shadow economy. It is constructed upon the idea that within a continuum between rule of law and corruption, the levels of political risk vary greatly. Institutional statistical data are used to allow for reliability in time and cross-country comparison. As a proof of reliability, the resulting scores are highly correlated with other applied indices of political risk. A major advantage of the proposed index, however, is that it differentiates between developed countries, which is not possible with existing risk indices.

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