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Foreign Direct Investment And The Risk Of Expropriation

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  • Thomas, Jonathan
  • Worrall, Tim

Abstract

When an investor, for example a transnational corporation invests abroad it runs the risk that its investment will be expropriated. The host country although it might have a short-term incentive to expropriate has a long-term incentive to foster good relations to attract more investment in the future. This conflict between short-term and long-term incentives determines the type of contracts agreed by transnational corporations and host countries. In a model of the manufacturing industry with a continuous flow of investment it is shown that investment is initially underprovided, increases over time, tending, for certain parameter values, to the efficient level.

Suggested Citation

  • Thomas, Jonathan & Worrall, Tim, 1990. "Foreign Direct Investment And The Risk Of Expropriation," Economic Research Papers 268376, University of Warwick - Department of Economics.
    • Handle: RePEc:ags:uwarer:268376
    DOI: 10.22004/ag.econ.268376
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    References listed on IDEAS

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