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How does expropriation affect FDI? A synthetic control analysis of oil and gas sector nationalizations in South America

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  • Lucke, Bernd
  • Rehfeldt, Erik

Abstract

How do expropriations of foreign oil and gas assets affect the net inflow of FDI? We analyze political and legal developments which led to increased government control of natural resource extraction industries in South America in the early 2000s and discuss at which point in time foreign investors saw legislation as violating their legitimate property rights. We use synthetic control methods (SCM) to date expropriations and quantify their effect on FDI inflows in subsequent years. Strongly negative and statistically significant effects are found for Bolivia and Venezuela, with similar, but less conclusive evidence for Ecuador. SCM approaches which focus on structural characteristics and put little weight on pre-treatment outcomes are better equipped to detect the true “treatment” date than canonical SCMs. This is shown for Argentina where the 2012 nationalization of Repsol hardly affected FDI still down from the reputational damage inflicted by Argentina's 2001 sovereign default.

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  • Lucke, Bernd & Rehfeldt, Erik, 2023. "How does expropriation affect FDI? A synthetic control analysis of oil and gas sector nationalizations in South America," European Journal of Political Economy, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:poleco:v:80:y:2023:i:c:s0176268023000903
    DOI: 10.1016/j.ejpoleco.2023.102446
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    More about this item

    Keywords

    Expropriation; FDI; Synthetic control method;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H13 - Public Economics - - Structure and Scope of Government - - - Economics of Eminent Domain; Expropriation; Nationalization

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