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Expropriation of Foreign Direct Investments: Sectoral Patterns from 1993 to 2006

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  • Chris Hajzler

    ()
    (Department of Economics, University of Otago)

Abstract

This paper documents expropriation of foreign direct investment (FDI) across all developing coun- tries for the 1993-2006 period, extending work by Kobrin (1980, 1984) and Minor (1994). This unique data set on worldwide expropriation between 1960 and 2006 is used to highlight several (interrelated) stylized facts. First, although expropriations have become less frequent compared to the 1970s, the number of takings has risen since the mid-1990s. Second, foreign firms are more vulnerable to expro- priation in resource-based sectors, particularly in mining and petroleum. Third, the timing of expro- priation coincides with fluctuations in mineral output price levels. Finally, when newly constructed FDI stock estimates are used to compare the sectoral distribution of FDI of recent expropriating coun- tries to that of non-expropriating countries, we find that expropriating countries have a higher average share of aggregate FDI located in resources; however, this difference is not reflected in average sector production shares. This last fact is puzzling given that natural resource-based FDI has traditionally been considered high risk.

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File URL: http://www.business.otago.ac.nz/econ/research/discussionpapers/DP_1011.pdf
File Function: First version, 2010
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Bibliographic Info

Paper provided by University of Otago, Department of Economics in its series Working Papers with number 1011.

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Length: 47 pages
Date of creation: Sep 2010
Date of revision: Sep 2010
Handle: RePEc:otg:wpaper:1011

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Keywords: Expropriation; Foreign Direct Investment; Natural Resources;

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References

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  1. 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.
  2. Eduardo Engel & Ronald Fischer, 2008. "Optimal Resource Extraction Contracts under Threat of Expropriation," Levine's Bibliography 122247000000001833, UCLA Department of Economics.
  3. 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.
  4. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 1999. "The External Wealth of Nations: Measures of Foreign Assets and Liabilities for Industrial and Developing Countries," CEPR Discussion Papers 2231, C.E.P.R. Discussion Papers.
  5. Thomas, Jonathan & Worrall, Tim, 1990. "Foreign direct investment and the risk of expropriation," Kiel Working Papers 411, Kiel Institute for the World Economy.
  6. Michael S Minor, 1994. "The Demise of Expropriation as an Instrument of LDC Policy 1980-1992," Journal of International Business Studies, Palgrave Macmillan, vol. 25(1), pages 177-188, March.
  7. 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.
  8. Sergei Guriev & Anton Kolotilin & Konstantin Sonin, 2011. "Determinants of Nationalization in the Oil Sector: A Theory and Evidence from Panel Data," Journal of Law, Economics and Organization, Oxford University Press, vol. 27(2), pages 301-323.
  9. Roderick Duncan, 2006. "Price or politics? An investigation of the causes of expropriation ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(1), pages 85-101, 03.
  10. Jodice, David A., 1980. "Sources of change in Third World regimes for foreign direct investment, 1968–1976," International Organization, Cambridge University Press, vol. 34(02), pages 177-206, March.
  11. James Otto & Craig Andrews & Fred Cawood & Michael Doggett & Pietro Guj & Frank Stermole & John Stermole & John Tilton, 2006. "Mining Royalties : A Global Study of Their Impact on Investors, Government, and Civil Society," World Bank Publications, The World Bank, number 7105, March.
  12. J Frederick Truitt, 1970. "Expropriation of Foreign Investment: Summary of the Post World War II Experience of American and British Investors in Less Developed Countries," Journal of International Business Studies, Palgrave Macmillan, vol. 1(2), pages 21-34, June.
  13. Nellor, David C L, 1987. "Sovereignty and Natural Resource Taxation in Developing Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 35(2), pages 367-92, January.
  14. Michael Tomz & Mark L. J. Wright, 2008. "Sovereign Theft: Theory And Evidence About Sovereign Default And Expropriation," CAMA Working Papers 2008-07, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  15. Michael Tomz & Mark L. J. Wright, 2008. "Sovereign Theft: Theory And Evidence About Sovereign Default And Expropriation," CAMA Working Papers 2008-07, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  16. Raff, Horst, 1992. "A model of expropriation with asymmetric information," Journal of International Economics, Elsevier, vol. 33(3-4), pages 245-265, November.
  17. Kobrin, Stephen J., 1980. "Foreign enterprise and forced divestment in LDCs," International Organization, Cambridge University Press, vol. 34(01), pages 65-88, December.
  18. 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.
  19. Cole, Harold L. & English, William B., 1991. "Expropriation and direct investment," Journal of International Economics, Elsevier, vol. 30(3-4), pages 201-227, May.
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Citations

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Cited by:
  1. Chris Hajzler, 2010. "Resource-based FDI and Expropriation in Developing Economies," Working Papers 1012, University of Otago, Department of Economics, revised Sep 2010.
  2. Kashcheeva, Mila, 2013. "Political limits on the world oil trade : firm-level evidence from US firms," IDE Discussion Papers 401, Institute of Developing Economies, Japan External Trade Organization(JETRO).

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