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Democracy and Expropriations

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    In this paper I develop a voting model that shows the different effects of democratic competition and political constraints on the probability of expropriations of foreign investments. I show that these two aspects of liberal democracy might have very different effects on expropriation risks. Particularly interesting is the prediction that for low to intermediate levels of political competition for executive power, increased competition will lead to higher risk of expropriation. Testing this and other predictions on panel data for actual expropriations in 27 developing countries, I find support for the predictions from the model.

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    File URL: http://www.uib.no/filearchive/wp06.11.pdf
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    Paper provided by University of Bergen, Department of Economics in its series Working Papers in Economics with number 06/11.

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    Length: 96 pages
    Date of creation: 02 Feb 2011
    Handle: RePEc:hhs:bergec:2011_006
    Contact details of provider: Postal:
    Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway

    Phone: (+47)55589200
    Fax: (+47)55589210
    Web page: http://www.uib.no/econ/en
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    1. Schnitzer, Monika, 1999. "Expropriation and control rights: A dynamic model of foreign direct investment," International Journal of Industrial Organization, Elsevier, vol. 17(8), pages 1113-1137, November.
    2. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    3. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
    4. Timothy Besley & Masayuki Kudamatsu, 2007. "Making autocracy work," LSE Research Online Documents on Economics 3764, London School of Economics and Political Science, LSE Library.
    5. 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.
    6. Rodrik, Dani, 1999. "Where Did All the Growth Go? External Shocks, Social Conflict, and Growth Collapses," Journal of Economic Growth, Springer, vol. 4(4), pages 385-412, December.
    7. Eduardo Engel & Ronald Fischer, 2008. "Optimal Resource Extraction Contracts Under Threat of Expropriation," NBER Working Papers 13742, National Bureau of Economic Research, Inc.
    8. Busse, Matthias & Hefeker, Carsten, 2007. "Political risk, institutions and foreign direct investment," European Journal of Political Economy, Elsevier, vol. 23(2), pages 397-415, June.
    9. Marina Azzimonti-Renzo & Pierre-Daniel G. Sarte, 2007. "Barriers to foreign direct investment under political instability," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 287-315.
    10. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 83-116.
    11. Torsten Persson & Guido Tabellini, 2009. "Democratic Capital: The Nexus of Political and Economic Change," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(2), pages 88-126, July.
    12. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, 06.
    13. Jonathan Thomas & Tim Worrall, 1994. "Foreign Direct Investment and the Risk of Expropriation," Review of Economic Studies, Oxford University Press, vol. 61(1), pages 81-108.
    14. Konrad, Kai A. & Erik Lommerud, Kjell, 2001. "Foreign direct investment, intra-firm trade and ownership structure," European Economic Review, Elsevier, vol. 45(3), pages 475-494, March.
    15. Albouy, David, 2006. "The Colonial Origins of Comparative Development: An Investigation of the Settler Mortality Data," Center for International and Development Economics Research, Working Paper Series qt8kt576x8, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
    16. 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.
    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. repec:cdl:ciders:35823 is not listed on IDEAS
    19. Jensen, Nathan M., 2003. "Democratic Governance and Multinational Corporations: Political Regimes and Inflows of Foreign Direct Investment," International Organization, Cambridge University Press, vol. 57(03), pages 587-616, June.
    20. Ernesto Dal Bó & Martín Rossi, 2008. "Term Length and Political Performance," NBER Working Papers 14511, National Bureau of Economic Research, Inc.
    21. Benjamin F. Jones & Benjamin A. Olken, 2005. "Do Leaders Matter? National Leadership and Growth Since World War II," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 835-864.
    22. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 681-712.
    23. Duncan, Roderick, 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), March.
    24. Randall J Jones, 1984. "Empirical Models of Political Risks in U.S. Oil Production Operations in Venezuela," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 15(1), pages 81-95, March.
    25. W. J. Henisz, 2000. "The Institutional Environment for Economic Growth," Economics and Politics, Wiley Blackwell, vol. 12(1), pages 1-31, 03.
    26. Matthias Busse, 2004. "Transnational Corporations and Repression of Political Rights and Civil Liberties: An Empirical Analysis," Kyklos, Wiley Blackwell, vol. 57(1), pages 45-65, 02.
    27. Sachs, Jeffrey D. & Warner, Andrew M., 2001. "The curse of natural resources," European Economic Review, Elsevier, vol. 45(4-6), pages 827-838, May.
    28. Gerard Padró i Miquel, 2007. "The Control of Politicians in Divided Societies: The Politics of Fear," Review of Economic Studies, Oxford University Press, vol. 74(4), pages 1259-1274.
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