Association Analysis Of Global Risks And Corresponding Risk Management Strategies

With increasing interconnectedness in today's globalized world, global risks have become more deadly and frequent. Two main reasons lead to this phenomenon.The first one focuses on the natural attribute of risk: risks do not manifest themselves in isolation: their drivers, triggers and consequences are interconnected. The increasing interconnectivity between risks makes our world more vulnerable when facing cascading failures. Hence, it's necessary to build an integrated framework to manage risks, and consider the interconnectedness between different kinds of risks.The other one focuses on the social attribute of risk, and mainly points to the shortness and failure of the government in risk management. In dealing with risks,reliable governance mechanisms have outstanding advantages which can provide credible forecasts and warnings before disasters, as well as timely emergency responses and measures after disasters. Hence, Policymakers and the public have become increasingly aware of constructing improved risk governance mechanisms and meeting public expectations.Based on domestic and foreign research, to better manage systemic global risks,our paper analyses the interconnectedness between different global risks, and how to improve the risk governance ability of a country. First, we have presented a method of network analysis to obtain a quantitative picture of the relationships between global risks. Our model was built on expert assessments provided in the WEF reports from 2007 to 2016. According to their accurate forecast of aggregate failure probabilities of different risks, we have calculated the correlation coefficients between different global risks and developed a correlation network. We have uncovered some important properties of global risk network, and have identified clusters of risks and risks most crucial to risk governance. According to our results,most global risks are closely interconnected and interacted with each other, and the contagion of risk materialization can spread out rapidly through the network. Among the five kinds of risks in the WEF reports, environmental, societal and geopolitical risks tend to closely interconnect with each other and form the two largest clusters of risks. While economic and technology risks rarely correlate with other risks. The most detrimental hub node of the global risk network is "man-made environmental catastrophes", which has the largest node degree and the shortest average path length.Besides, "interstate conflict" is another hub node in the network, mainly connected to the societal and geopolitical risks. Based on the new regroup method proposed in our paper, compared to the traditional method to isolated deal with risks, it's more effective to manage the risks in the same group as a whole and control the contagion effect in the network.Then our paper studied the different effects of four institutional governance dimensions on risk governance ability across 139 countries. Each dimension represents an institutional government trait: economic openness, democracy,government effectiveness, and corruption. Based on the regression results and mediation effect analysis, several conclusions related to the influence of institutional factors on risk governance are drawn: Government effectiveness seems to be the most powerful factor for risk governance, and the government plays a leading role across different stages of risk governance. A high level of economic freedom has obvious advantages in risk governance. A liberal market can provide suitable risk transfer instruments and risk-spreading mechanisms. In addition, the results of mediation analysis show that a high level of economic freedom can improve economic development, which can provide sufficient economic resources to mitigate the effect of disasters. Although the variable voice and accountability is negatively correlated with risk governance ability, both centralized national control and democratic local institutions are necessary for successful risk governance and an integrated risk management system with diverse risk strategies may be the optimal solution. Control of corruption directly and indirectly influences risk governance.Severe corruption directly impairs the conduct efficiency from the national to the local level, generates severe costs, and indirectly undermines trust and public support for governments.At last, based on our previous conclusions, we have given some advice on the future risk management of China: first, environmental risk is one of the most important problems in our country. To better control the global risks and reduce the threat of systematic risks, our government should mainly focus on the "man-made environmental catastrophes",especially the air pollution problems. Second,according to the risk management rating and the four institutional indicators of China, our government can improve the risk governance ability as follows: (1) More open economic institutions is helpful for a sound catastrophe insurance and reinsurance market, which can provide better risk-spreading mechanisms. (2) Our government can be more effective in the three phases of pre-risk, in-risk and post-risk. (3) In the local level, government should broadly communnicate and coordinate with social associations and civilians. (4) Our government needs to strengthen the anti-corruption actions.