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Expropriation of foreign direct investments: sectoral patterns from 1993 to 2006

  • Christopher Hajzler


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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Article provided by Springer in its journal Review of World Economics.

Volume (Year): 148 (2012)
Issue (Month): 1 (April)
Pages: 119-149

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Handle: RePEc:spr:weltar:v:148:y:2012:i:1:p:119-149
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  1. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2001. "The external wealth of nations: measures of foreign assets and liabilities for industrial and developing countries," Journal of International Economics, Elsevier, vol. 55(2), pages 263-294, December.
  2. Engel, Eduardo & Fischer, Ronald, 2008. "Optimal Resource Extraction Contracts under Threat of Expropriation," Working Papers 34, Yale University, Department of Economics.
  3. Raff, H, 1991. "A Model of Expropriation with Asymetric Information," Cahiers de recherche 9105, Université Laval - Département d'économique.
  4. Thomas, Jonathan & Worrall, Tim, 1990. "Foreign direct investment and the risk of expropriation," Kiel Working Papers 411, Kiel Institute for the World Economy.
  5. 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.
  6. Cole, Harold L. & English, William B., 1991. "Expropriation and direct investment," Journal of International Economics, Elsevier, vol. 30(3-4), pages 201-227, May.
  7. Jonathan Eaton & Mark Gersovitz, 1982. "A Theory of Expropriation and Deviations From Perfect Capital Mobility," NBER Working Papers 0972, National Bureau of Economic Research, Inc.
  8. 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.
  9. Guriev, Sergei & Kolotilin, Anton & Sonin, Konstantin, 2008. "Determinants of Expropriation in the Oil Sector: A Theory and Evidence from Panel Data," CEPR Discussion Papers 6755, C.E.P.R. Discussion Papers.
  10. 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.
  11. 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.
  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. 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.
  14. Kobrin, Stephen J., 1980. "Foreign enterprise and forced divestment in LDCs," International Organization, Cambridge University Press, vol. 34(01), pages 65-88, December.
  15. 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.
  16. 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.
  17. 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.
  18. 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.
  19. 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.
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