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Crisis and contract breach: The domestic and international determinants of expropriation

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  • Nathan M. Jensen

    (University of Texas at Austin)

  • Noel P. Johnston

    (University of California at Riverside)

  • Chia-yi Lee

    (Nanyang Technological University)

  • Hadi Sahin

Abstract

In this paper we address how external factors shape government decisions to break or uphold contracts, specifically focusing on how economic shocks and support from multilateral financial institutions shape leader decisions to expropriate from investors. Contrary to conventional wisdom and much of the existing scholarship, we argue that governments are less likely to expropriate from investors during periods of economic crisis since governments become more sensitive to the reputational costs of expropriating. We also argue that governments are sensitive to the levers other governments may use to punish for expropriation, such as withholding IMF and World Bank funding. We test these theories using a dataset of investment expropriations and case studies of thirty-four investment disputes that were resolved pre-claim. Our econometric analysis suggests that expropriations of foreign investment are less common during periods of crisis, and that countries under IMF agreements or borrowing from the World Bank are less likely to expropriate. Our thirty-four case studies, which substantiate the role of government reputation and multilateral pressure, support our statistical results.

Suggested Citation

  • Nathan M. Jensen & Noel P. Johnston & Chia-yi Lee & Hadi Sahin, 2020. "Crisis and contract breach: The domestic and international determinants of expropriation," The Review of International Organizations, Springer, vol. 15(4), pages 869-898, October.
  • Handle: RePEc:spr:revint:v:15:y:2020:i:4:d:10.1007_s11558-019-09363-z
    DOI: 10.1007/s11558-019-09363-z
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    Cited by:

    1. Hoon Lee & David Lektzian & Glen Biglaiser, 2023. "The Effects of Economic Sanctions on Foreign Asset Expropriation," Journal of Conflict Resolution, Peace Science Society (International), vol. 67(2-3), pages 266-296, February.
    2. Steven Liao & Daniel McDowell, 2022. "Closing time: Reputational constraints on capital account policy in emerging markets," The Review of International Organizations, Springer, vol. 17(3), pages 543-568, July.
    3. Nicole Janz & Noel Johnston & Paasha Mahdavi, 2022. "Expropriation and human rights: does the seizure of FDI signal wider repression?," The Review of International Organizations, Springer, vol. 17(4), pages 847-875, October.
    4. Cohen, Isabelle, 2023. "Crowd in or crowd out? The subnational fiscal response to aid," World Development, Elsevier, vol. 164(C).

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    More about this item

    Keywords

    Expropriations; Economic crisis; Multilateral financial institutions; Reputational costs; Retaliation costs;
    All these keywords.

    JEL classification:

    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • F69 - International Economics - - Economic Impacts of Globalization - - - Other
    • H13 - Public Economics - - Structure and Scope of Government - - - Economics of Eminent Domain; Expropriation; Nationalization

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