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Price or politics? An investigation of the causes of expropriation

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  • Duncan, Roderick
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    Abstract

    Expropriations of foreign direct investment in developing countries are typically blamed on political and economic crises in those countries. Developing a new database of expropriations in the minerals sectors of developing country exporters, I show that expropriations were correlated with mineral price booms and that democratic governments were more likely to expropriate. No link is found between expropriations and political or economic crises, except at independence. A better explanation of expropriation would be opportunistic behaviour by host governments when profits of investments are high. In two developed countries, Australia and Canada, expropriations are also found to occur during price booms.

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    File URL: http://purl.umn.edu/116859
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    Bibliographic Info

    Article provided by Australian Agricultural and Resource Economics Society in its journal Australian Journal of Agricultural and Resource Economics.

    Volume (Year): 50 (2006)
    Issue (Month): 1 (March)
    Pages:

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    Handle: RePEc:ags:aareaj:116859

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    Related research

    Keywords: expropriation; foreign direct investment; natural resources; Resource /Energy Economics and Policy;

    References

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    1. Schnitzer, Monika, 1999. "Expropriation and control rights: A dynamic model of foreign direct investment," International Journal of Industrial Organization, Elsevier, vol. 17(8), pages 1113-1137, November.
    2. Beck, T.H.L. & Clarke, G. & Groff, A. & Keefer , P. & Walsh, P., 2001. "New tools in comparative political economy: The database of political institutions," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125517, Tilburg University.
    3. Harald Knudsen, 1974. "Explaining the National Propensity to Expropriate: An Ecological Approach," Journal of International Business Studies, Palgrave Macmillan, vol. 5(1), pages 51-71, March.
    4. Cole, Harold L. & English, William B., 1991. "Expropriation and direct investment," Journal of International Economics, Elsevier, vol. 30(3-4), pages 201-227, May.
    5. Thomas, Jonathan & Worrall, Tim, 1994. "Foreign Direct Investment and the Risk of Expropriation," Review of Economic Studies, Wiley Blackwell, vol. 61(1), pages 81-108, January.
    6. Bohn, Henning & Deacon, Robert, 1997. "Ownership Risk, Investment, and the Use of Natural Resources," Discussion Papers dp-97-20, Resources For the Future.
    7. Eaton, Jonathan & Gersovitz, Mark, 1984. "A Theory of Expropriation and Deviations from Perfect Capital Mobility," Economic Journal, Royal Economic Society, vol. 94(373), pages 16-40, March.
    8. Stephen J Kobrin, 1979. "Political Risk: A Review and Reconsideration," Journal of International Business Studies, Palgrave Macmillan, vol. 10(1), pages 67-80, March.
    9. Picht, Hartmut & Stuven, Volker, 1991. " Expropriation of Foreign Direct Investments: Empirical Evidence and Implications for the Debt Crisis," Public Choice, Springer, vol. 69(1), pages 19-38, February.
    10. Atkeson, Andrew, 1991. "International Lending with Moral Hazard and Risk of Repudiation," Econometrica, Econometric Society, vol. 59(4), pages 1069-89, July.
    11. Randall J Jones, 1984. "Empirical Models of Political Risks in U.S. Oil Production Operations in Venezuela," Journal of International Business Studies, Palgrave Macmillan, vol. 15(1), pages 81-95, March.
    12. Garnaut, Ross & Clunies Ross, Anthony, 1975. "Uncertainty, Risk Aversion and the Taxing of Natural Resource Projects," Economic Journal, Royal Economic Society, vol. 85(338), pages 272-87, June.
    13. Veugelers, Reinhilde, 1993. "Reputation as a Mechanism Alleviating Opportunistic Host Government Behavior against MNEs," Journal of Industrial Economics, Wiley Blackwell, vol. 41(1), pages 1-17, March.
    14. Raff, H, 1991. "A Model of Expropriation with Asymetric Information," Cahiers de recherche 9105, Université Laval - Département d'économique.
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    Cited by:
    1. Kai A. Konrad & Dan Kovenoch, 2009. "Competition for FDI with vintage investment and agglomeration advantages," Working Papers 2009/18, Institut d'Economia de Barcelona (IEB).
    2. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2006. "Capital Structure with Risky Foreign Investment," NBER Working Papers 12276, National Bureau of Economic Research, Inc.
    3. Roberto Chang & Constantino Hevia & Norman Loayza, 2010. "Privatization and Nationalization Cycles," NBER Working Papers 16126, National Bureau of Economic Research, Inc.
    4. Di Corato, Luca, 2010. "Profit Sharing under the Threat of Nationalization," Working Papers 58292, Swedish University of Agricultural Sciences, Department of Economics.
    5. Christensen, Jonas Gade, 2011. "Democracy and Expropriations," Working Papers in Economics 06/11, University of Bergen, Department of Economics.
    6. Philipp an de Meulen, 2011. "Labor Heterogeneity and the Risk of Expropriation in Less Developed Countries," Ruhr Economic Papers 0298, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    7. Christian Velasquez-Donaldson, 2007. "Analysis of the Hydrocarbon Sector in Bolivia: How are the Gas and Oil Revenues Distributed?," Development Research Working Paper Series 06/2007, Institute for Advanced Development Studies.

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