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The reasons of occurrence and types of innovative state risks



Department of National Economics Theory and Development of Economic Relations, Institute of Economy of the Science Committee upon the Ministry of Education and Science of  the Republic of Kazakhstan

Kurmangazy st., 29, Almaty, The Republic of Kazakhstan


The aim of this paper is to determine the reasons that caused occurrence of innovative risks on all levels of economic systems and also their classification. A complex of methods was implemented in scope of this article such as: generalization, analysis, comparison and classification.

This article comprises analysis of “risk” term’s origin, classification of main approaches towards determination of its essence as well as comparison of terms that is close in meaning to the risk at the state level. It also stipulates the main causes of the country’s uncertainty. Functions of country’s economic risk have been determined as well. This article also determines necessity for consideration of innovative risk as a multi-stage category with a tendency of exposure at various levels of economic systems which define the major factors that cause innovative risk at each level. General classification of innovative risks has been made based on the quality characteristics.

Key words: risk theory, country risk, risk sources, innovative risk, classification of innovative risk.


Not many problems of economic theory and practice cause such active discussions as those that are related to the risks on all levels of economic system. Risks are the natural reflection of economic systems’ mobility and their viability. Risks are formed in scope of economic systems due to inconsistency and frictions that are caused by interaction of structural elements and components within the economic system.

Innovations in modern economy play significant role for the purpose of acquiring and supporting the strongest sides in competitive struggle on the global scale and solving the task of determining innovative risks at all levels of economy and the reasons that caused them as well as risks classification  is a complex issue due to variety of risks and uncertainty about their origin.  On the other hand, solvability of this task stipulates a vital necessity and could be realized on the basis of currently essential economic theory that could create implications for successful analysis and determination of general substance of risks, their structure, specifics and mechanisms of development for each of the risks as well as distribution of all expenditures and counterbalance that could neutralize them.


Modern sources associate origin of “risk” term with Greek words ridsikon, ridsa which means cliff, rock. In Italian language the word risiko means danger, threat; the verb risikare means – to dare. In French risqoe means threat, to risk (which literally means to circuit the cliff or rock). The word “risk” in Webster dictionary is defined as “danger, possibility of loss or damage” (Granaturov 2002).  Ozhegov dictionary defines the word risk as the possibility of danger or to take risk with a chance for successful result (Ozhegov 1978).

Scientific literature contains many approaches for determination of this category’s substance however all of them could be combined in four basic groups.

1.  The first concept is related to development of optimal control theories (Grabovoi 1994; Balabanov 1996; Ashepkov 1996; Dolan & Lindsay 1994) where the risk is considered as attributive all-social characteristic of any type of the human’s sensible activity undertaken within resource limitation and availability of opportunities to choose the optimal method for achieving goals within  the situation of information uncertainty.

2. Other works that could be distinguished in another concept of risk theory consider that risks result due to accumulation of regressive potential (Gassendi 1966; Viko 1940, Danilevsky 1889; Shpengler 1923; Meadows 1972; Mesarovic & Pestel 1972; Olsevich 1994). This approach originates from the theories of historical and technological progress where the main attention is focused on researching specifics of destructive risks such as:

-  Irretrievable loss of qualities, material and spiritual values that were useful in the past but not longer valid in present;

-  Emergence of new qualities, material and spiritual values, scale of threats which regressive potential in future is unclear and obscure;

-  Decrease  of threshold safety level  due to development  of new productions, technologies and proliferation of new types of weapons;

-  Increase of environmental threats and challenges in proportion to increase of industrial potential.

-  The third groups of authors consider the risks as a type of result uncertainty which is related to entrepreneurship (Shvandar 2002).

4. The fourth group of authors reviews institutional factors that influence on specifics of economic risks. This type of concept enables to understand and determine the nature of the risk in modern economy based on fundamental analysis of interaction between formal and informal institutes. Ineffective interaction creates threats and risks based on the conflict of interests. Institutes are the rules, mechanisms and norms of people’s behavior in economy. Those are the structured forms of human communication determined by cooperation of political and economic institutes.

Risk – is a dynamic event that exists in a constant movement and development. This type of development shall be called as a risk mechanism. Such mechanism is based on substantive inconsistency of risk that is stipulated by general conformity of its existence:

-  Inconsistency of risks exposure attributes. Risk may have a positive result (for example, bring profit) or negative (for example, bring losses).  Trajectory of risk development depends on to what the risk is inclined at the current moment for example to positive or negative result. Moreover the risk’s development trajectory may escape permissible margin which means the level of acceptable risk;

-  Inconsistency of necessity and contingency elements comprised in risk concept. Necessity is what should logically be realized. Unlike to necessity, contingency is not stipulated by anything. This is what occurs unexpectedly and suddenly. Risk mechanism contains necessity which means that it’s different elements are predictable and they could be evaluated and controlled; similarly with contingency where certain risks elements could not be predicted but  they could be controlled to a certain extent;

-  Temporary inconsistency is determined by the fact that the moment of occurrence and the moment of risk’s exposure do not coincide in time (Smirnova 2001).

-  Upon reviewing the concept of the country’s risk substance it is necessary to mention significant category as “country risk”. It should be noted that the concept of “country risk” was initially introduced in order to describe the nature of negative events that might be encountered by investor on developing markets. For instance it could be: instability of political regime, external conflicts, corruption, civil disorders and wars, control over exchange rate, unanticipated inflation, various defaults, expropriation of private capital, etc. However at present, there is a lack of  univocal  concept for “country risk”.  Country risk is determined as an integral result of interaction between events of international activity and circumstances (political, economic, social, etc.) that do not depend from the subject. One of definitions of a country risk is as follows:

Country risk – is a risk of financial losses during realization of business operations that are directly or indirectly related with international operations and trans-boundary funds remittance. It is determined according to conditions of current and perspective development of the foreign country (political, economic, social, etc.) as well as  by the impact degree of those conditions on the clients and counteragents’ abilities to  repay their external debts while they’re situated in that country (Susanov 2001).  In other sources country risk is determined as the possibility of changing the current and future economic as well as fiscal and monetary, social and political conditions of the large system and its components in such a degree that it would influence on the ability of the state and various industries and companies to repay their obligations to foreign creditors or might directly or indirectly breach the property right of foreign investors (Filin 2000).

As a result of comprehensive literature research of the country risk substance it is possible to state that the meaning of country risk is used mainly in financial sphere.

However in my opinion (2005), country risk – is a very complex comprehensive event with characteristics that could be traced in many other spheres. This way I think it would be logical to equate the meaning of country risk and the sovereign risk and review the country risk as the risk of causing the damage to the whole state and not just to specific creditor or investor. Due to this, since we have already reviewed economic sphere I would like to introduce the meaning of country economic risks or economic sovereign risks.

The concept of strategic risk was recently introduced in scientific literature though in essence it represents the sovereign risk. More comprehensive substance of this term means the possibility of harm to the country’s national interests and deterioration of  potential of its stable development that is connected with external groups of factors (so called challenges), e.g. the negative changes of the international status of the country  primarily  in political and economic spheres due to unfavorable tendencies of global development and due to internal groups of factors that stipulate  the possibility of crisis development in social and economic systems and creation of implications for such development including consequences caused by inefficient decisions or lack of  any strategic decisions on  priority (political, including military and political, social and economic, scientific and technical and environmental) aspects of the country’s development (Vishnyakov & Radayev 2007).

In my opinion, economic sovereign risk represents a complex of negative events that happened in the market system of economy within the country or on the global scale and reflect possibility degree of contingent and unexpected dangers and losses for the national interests of the country and overall economic situation due to inefficient or insufficiently efficient control over certain priority spheres of economy  which causes  the threat for the functioning and development of all spheres of the country.

One of the main risk characteristics is that it is always produced by specific object and is not an abstract concept. Therefore one of its characteristics should be the source of risk. Risk sources or the main reasons of the country’s uncertainty are:

1.  Unpredictability of natural processes and events, natural disasters. Occurrence of natural disasters such as earthquakes, floods, storms, hurricanes and certain unpleasant natural hazards – drought, hail, e.t.c can cause significant negative impact on the country’s economic situation and become the source of unanticipated state budget expenses.  

2.  Element of chance. Probability substance of many social, economic and ecological processes leads to the fact that in similar conditions the same event occurs differently which implies the presence of  the element of chance.Very significant and not always predictable impact on the country is caused by: various environmental disasters and technogenic catastrophes; acts of terrorism; strikes and various feuds, e.t.c.

3.  Instability of human  relations, clash of conflicting interests. This risk source is characterized in many ways that include  wars and interethnic, ethnic and regional conflicts up to the competition on the international market and in the country. Existence of opposing and conflicting tendencies within social and economic development bring the elements of uncertainty and those create the situation of risk within the social and economic spheres of the country.

4.  Uncertain characteristics of scientific and technical progress. General direction of science and technology development especially for the near future could be forecasted with a precise accuracy. However it is not possible to determine specific consequences of certain scientific discoveries or technical innovations.  Technical progress could not be achieved without the risk which is stipulated by its probabilistic nature since scientific expenses and especially scientific results are extended and distant in time.

5.  The sources that cause uncertainty and risks also include:

-  limitation, lack of material, financial, labor and other sources for development of certain type of industrial sphere in the country or in the region;

-  instability of governmental power, specifics of  governmental structure and legislation;

-  ineffective economic policy conducted by the Government;

-  weak, financial and banking systems that do not correspond to international standards.

At present, comparatively stable opinion has been formed on the question of risk functioning. However comprehensive analysis of literature has revealed that risks functions are inherent mainly to entrepreneurship risks while sovereign  economic risks has their own specifics and reflect certain object (economic system of the country)  due to which the functions fill in with  a  certain meaning. This way, we define the following functions of the country’s economic risk:

Country’s economic system is inevitably connected with economic problems and opportunity to forecast negative results in development of economic situation in the country will help to undertake required measures for its prevention.

This stipulates the first function of the country’s economic risks called preventative. Any country undertakes certain measures to neutralize already occurred crisis situation in the country’s economy therefore a second- repressive function is defined. None of the countries have an ideal system of control and cannot forecast all negative events with one hundred per cent accuracy however any country strives to maintain a stable situation in economy. Thus way, the third stabilizing function is determined. This function’s specific also reveals during stabilization of overall  economic situation after neutralization of the negative events that permanently happen in economy. Therefore it is possible to conclude that these functions are cyclical in country’s economy.

Summarizing all of the above-mentioned it is possible to conclude that the main distinctive characteristic of the state’s economic risk is stipulated by stability of country’s economic system which has significant importance in modern conditions for many countries in the world.


Based on conducted analysis of “innovative risk” concept it was determined that at present there is no unified opinion in defining this concept. Despite the large number of works devoted to innovation, the problem of determining the concept of innovative risk as specific risk generated by the various types of innovative activity has not been researched in full measure.

Current approaches for determining innovative risks are dominated by the concepts that reflect the substance of this term on the  “mirco-level”- e.g. the level of certain number of innovative projects, specifics of entrepreneurship activity, etc. Besides, such types of important elements of innovative risk like risks related with organization and realization of innovation at the level of certain regions, countries, etc. are almost overlooked.

Ivanov (2012) offers to consider innovative risk as a multi-level category which differs by its specifics, different impact factors and peculiarities of exposure at various levels of economic systems functioning.

1. Mega level – formation and expression of innovative risk on the level of global innovative system on the world scale. Factors and causes of risk at innovative system are stipulated by irregularity of innovative development in various countries, unfavorable environment on the international financial markets, etc.;

2. Macro-level – formation and exposure of innovative risk on the level of global innovative system which risk factors (main causes) are stipulated by irregularity of innovative development of various regions,  inefficiency of managerial influence on the processes of innovative activity on the level of innovative system;

3. Meso-level  –  formation and exposure of innovative risk on the level of regional innovative system which risk factors are stipulated by  diversification of risks within innovative projects and inefficiency of managerial influence  on the processes of innovative activity on the level of regional innovative system;

4. Micro-level – formation and exposure of innovative risk on the level of industrial, cluster innovative system and innovative system of the enterprise which risk factors are stipulated by the risks of entrepreneurship and certain projects.

This way, under innovative risk it is possible to imply probability of non-achieving planned results of the functioning and development of innovative systems on the various levels:

1)  Innovative risk at mega-level – is  a probability of the country’s situation  deterioration within the international innovative ratings, general slowdown of innovative development in the world due to unfavorable conditions on the international finance (currency) markets and because of international political situation, natural disasters, etc.

2) Innovative risk at macro-level – is a probability of non-achieving planned social and economic results from realized innovative projects in scope of the certain country due to ineffective implementation of existing innovative potential of the regions and also insufficient consideration of risk factors during managerial influence on the subjects of national innovative systems.

3) Innovative risks at  meso-level – is a probability of failing to achieve planned social and economic results from realized  innovative projects on the territory of the certain region due to ineffective implementation of existing innovative potential and also insufficient consideration of risk factors during managerial influence on the part of the subjects of the regional innovative system.

4)  Innovative risk of micro-level – is a probability of loss of forecasted income or failure to achieve planned economic results of realized cluster in scope of certain industry or failure to achieve results by the enterprise of innovative projects due to inefficient implementation of existing innovative potential of the industry, cluster or enterprise and insufficient consideration of risk factors during managerial influence on the part of the subjects of innovative activity.

In my opinion, all risks that happen during creation, introduction and practical  implementation of progressive innovations should be considered in a scope of unified comprehensive  concept of “innovative risk”. Innovative risk represents a type of economic risk and similarly as with the concept of “economic risk” could be defined as the possibility (probability) of rupture of existing and origination of new innovative relations (connections) between subjects, subject and object of these relations in space and time since innovative risk has subjective and objective nature.

On one side it is connected with selection of certain types of alternatives, estimation (if such opportunity is available) of probability of its result. Besides, various subjects that demonstrate innovative activity have various purposes of activity, different legal status and psychological attitudes. All of this stipulates availability of subjective constituent of innovative risks.

On the other side, probabilistic substance of innovative activity, lack of possibility  to envisage accurately its final results stipulate availability of  objective constituent within the innovative risks.

Therefore the subjective and objective nature of innovative risk is determined by the fact that it is created by the processes of subjective nature as well as by the processes which existence does not depend on the will and conscience of people.

Risks classification is a risk distribution into certain groups according to specific properties for the purpose of achieving the goals (Balabanov 1996).

Scientifically justified classification provides opportunity to identify the role of each risk in the overall system. It creates opportunities for efficient implementation of various methods and approaches for risk management.

At present there is a lack of complex approaches for classification of innovative risks. Moreover, modern scientific literature still does not have examples of organized system for classification of economic risks.

However during classification of innovative risk it will be helpful to set the following sequence of risk characteristics and classification with corresponding types of risks (Stepanenko 2010):

1)  Main cause:

1.1.  General economic innovative risks;

1.2.  Commercial innovative risks;

1.3. Technical and technological innovative risks;

1.4. Political innovative risks;

1.5. Natural innovative risks;

1.6. Ecological innovative risks;

1.7. Legal innovative risks.

2) Sphere of origin:

2.1. External innovative risks;

2.2. Internal innovative risks.

3) Possibleresult:

3.1. Genuine innovative risks;

3.2. Speculative innovative risks.

4) Possibility of insurance:

4.1. Insurable innovative risks;

4.2. Non-insurable innovative risks.

5) Timeoforigin:

5.1. Current innovative risks;

5.2. Potential innovative risks.

6)  Duration in time:

6.1. Short-term innovative risks;

6.2. Long-term innovative risks;

6.3. Constant innovative risks.

7) Level of decision-making:

7.1. Nation-wide innovative risks;

7.2. Inter-industrial innovative risks;

7.3. Industrial innovative risks;

7.4. Regional innovative risks;

7.5. Overall innovative risks of the certain enterprise;

7.6. Innovative risks of the structured subdivision of a certain enterprise;

7.7. Innovative risks of the certain employee at the certain enterprise.

8) Management possibilities:

8.1. Predictable innovative risks;

8.2. Unanticipated innovative risks.

9) Risk intensity of the situation:

9.1. Minimal innovative risks;

9.2. Moderate innovative risks;

9.3. Critical innovative risks;

9.4. Disastrous innovative risks.

Suggested approach enables to characterize each innovative risk by attributing each risk to a certain type according to their most significant attributes in scope of generalized complex classification of innovative risks.  Besides this type of innovative risks classification could serve as potential basis for organizing the system of recording  of various innovative risks in real time mode not only  on the level of specific subjects of economy but also on a nation-wide level.


Research outlined in this article is based on the multiple-level concept (mega-, macro-, meso-, and micro-level) of the innovative risk’s exposure. Based on this, it was possible to adjust content of “innovative risk” category which unlike the other existing concepts,  enables to consider the concept as a multiple level aspect of exposure through the probability of failure to achieve  planned results of innovative systems on different levels.

Creation of generalized classification of innovative risks considering the most significant attributes has an important significance not only for certain types of enterprises during realization of innovative operations  but also for the government during realization of its innovative policy. This is related with the fact that this type of classification has not only theoretical and methodological but also significant practical meaning that provides enterprises and government with an opportunity to obtain complex information on available potential risks during realization of its innovative activity.


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