Which factor is critical when assessing political risk in international investments?

When assessing political risk in international investments, the stability of a government's structure and its policies is crucial. Government stability refers to the likelihood that the current government will remain in power and that there will be continuity in its policies. A stable government usually provides a predictable environment for foreign investments, whereas a change in leadership or policy can lead to uncertainty, impacting everything from regulations around investments to taxation rates.

Policies enacted by the government also play a significant role in shaping the investment climate. For instance, pro-business policies can encourage investment, while restrictive or unpredictable changes in legislation can deter investors due to fears of expropriation, increased taxes, or other regulatory burdens.

While factors like currency exchange rates, international competition, and technological advancements are all relevant in the context of investments, they do not directly pertain to the political landscape that governs the environment in which businesses operate. Hence, understanding the political dynamics and changes in government policies is essential for investors to manage and mitigate risk effectively.