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

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    1. Thomas, Jonathan & Worrall, Tim, 1990. "Foreign direct investment and the risk of expropriation," Kiel Working Papers 411, Kiel Institute for the World Economy.
    2. 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.
    3. 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.
    4. 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.
    5. Stephen J Kobrin, 1979. "Political Risk: A Review and Reconsideration," Journal of International Business Studies, Palgrave Macmillan, vol. 10(1), pages 67-80, March.
    6. Atkeson, Andrew, 1991. "International Lending with Moral Hazard and Risk of Repudiation," Econometrica, Econometric Society, vol. 59(4), pages 1069-89, July.
    7. 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.
    8. Raff, Horst, 1992. "A model of expropriation with asymmetric information," Journal of International Economics, Elsevier, vol. 33(3-4), pages 245-265, November.
    9. 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.
    10. 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.
    11. Cole, Harold L. & English, William B., 1991. "Expropriation and direct investment," Journal of International Economics, Elsevier, vol. 30(3-4), pages 201-227, May.
    12. Bohn, Henning & Deacon, Robert, 1997. "Ownership Risk, Investment, and the Use of Natural Resources," Discussion Papers dp-97-20, Resources For the Future.
    13. 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.
    14. 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.
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    Cited by:
    1. Lahimer, Noomen, 2009. "La contribution des investissements directs étrangers à la réduction de la pauvreté en Afrique subsaharienne," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/1167 edited by Goaied, Mohamed & Bienaymé, Alain.
    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. Konrad, Kai A & Kovenock, Dan, 2008. "Competition for FDI with Vintage Investment and Agglomeration Advantages," CEPR Discussion Papers 6740, C.E.P.R. Discussion Papers.
    4. 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.
    5. 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.
    6. James L. Smith, 2012. "Issues in Extractive Resource Taxation," IMF Working Papers 12/287, International Monetary Fund.
    7. Luca Di Corato, 2010. "Profit Sharing under the Threat of Nationalization," Working Papers 2010.5, Fondazione Eni Enrico Mattei.
    8. Christensen, Jonas Gade, 2011. "Democracy and Expropriations," Working Papers in Economics 06/11, University of Bergen, Department of Economics.
    9. Smith, James L., 2013. "Issues in extractive resource taxation: A review of research methods and models," Resources Policy, Elsevier, vol. 38(3), pages 320-331.
    10. Chang, Roberto & Hevia, Constantino & Loayza, Norman, 2009. "Privatization and nationalization cycles," Policy Research Working Paper Series 5029, The World Bank.

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