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Investment and Expropriation under Oligarchy and Democracy in a Heckscher-Ohlin World

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Author Info

  • Facundo Albornoz
  • Sebastian Galiani
  • Daniel Heymann

Abstract

We study the incentives to expropriate foreign capital under democracy and obligarchy. We model a two-sector small open economy where foreign investment triggers Stolper-Samuelson effects through reducing exporting costs. We show how incentives to expropriate depend on the distributional effects of the investment and how these affect the interests of the group in power. How investment affects the incomes of the different groups in society depends on the sectors where these investments are undertaken and the structural features of the economy such as factor intensity. We characterize expropriation equilibria and show that if investment is undertaken in the sector that uses labor less intensively, democracies are generally more prone to expropriate. This result provides one possible rationalization for the wave of expropriation equilibria and show that if investment is undertaken in the sector that uses labor less intensively, democracies are generally more prone to expropriate. This result provides one possible rationalization for the wave of expropriations in Latin America under governments with a broad popular base during the 20th Century.

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File URL: ftp://ftp.bham.ac.uk/pub/RePEc/pdf/invest.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Birmingham in its series Discussion Papers with number 08-02.

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Length: 35 pages
Date of creation: Jan 2008
Date of revision:
Handle: RePEc:bir:birmec:08-02

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Postal: Edgbaston, Birmingham, B15 2TT
Web page: http://www.economics.bham.ac.uk
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Related research

Keywords: Expropriation; political regimes; democracy; oligarchy; foreign investments; Stolper-Samuelson;

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References

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  1. Daron Acemoglu & Simon Johnson & James Robinson, 2004. "Institutions as the Fundamental Cause of Long-Run Growth," NBER Working Papers 10481, National Bureau of Economic Research, Inc.
  2. Bruce A. Blonigen & Matthew J. Slaughter, 1999. "Foreign-Affiliate Activity and U.S. Skill Upgrading," NBER Working Papers 7040, National Bureau of Economic Research, Inc.
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Cited by:
  1. Anders Akerman & Anna Larsson & Alireza Naghavi, 2011. "Autocracies and Development in a Global Economy: A Tale of Two Elites," Center for Economic Research (RECent) 065, University of Modena and Reggio E., Dept. of Economics.
  2. Sebastian Galiani & Norman Schofield, 2010. "Factor Endowments, Democracy and Trade Policy Divergence," DEGIT Conference Papers c015_027, DEGIT, Dynamics, Economic Growth, and International Trade.
  3. Aidt, Toke S. & Albornoz, Facundo, 2011. "Political regimes and foreign intervention," Journal of Development Economics, Elsevier, vol. 94(2), pages 192-201, March.

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