Unfriendly or Unwanted? Inward-investment and Political Risk in Italy

Until quite recently, political risks to investments, generally understood to be in the form of expropriations or harm to foreign enterprises due to political violence, were considered attributes exclusive to developing countries. Today, global equilibria have changed and hitherto clear-cut distinctions such as “developing” vs. “developed” countries and economies have become increasingly blurred. Moreover, the relationship among politics, ‘policies’ and the activity of international investors has been further complicated by the ongoing economic and financial crises. Coincidentally, the factors that can contribute to differing levels of ‘political risk’ in a given nation-state have also become more complex, which calls for in-depth scrutiny into the study of FDI determinants in the increasingly fragile ‘developed’ markets. Socio-economic indicators in many parts of Europe point to a number of poignant questions on the relation among inward FDI and stability of business investments which are central to political risk analysis. This article aims to shed light on the various mechanisms that link inward direct investment and political risk in the context of ‘mature’ liberal democracies through a case study of Italy. After providing a comprehensive account of the overall investment environment and trends, special attention will be paid to the infrastructure sector, one in which the interaction between governments and investors has always played a pivotal role in the success of FDI projects, thus expanding upon the socio-political and institutional factors that can affect FDI.