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

Jensen, Nathan M.; Johnston, Noel P.; Lee, Chia-yi; Sahin, Hadi

doi:10.1007/s11558-019-09363-z

Cited by 31 publications

(24 citation statements)

References 73 publications

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“…Economic crisis is associated with inconvertibility claims but not with expropriation claims. These results seem inconsistent with Abiad and Mody (2005) and Jensen et al (2012), who emphasize the liberalizing and constraining potential of economic crisis, and with Wellhausen (2015b), who discusses the revenue benefits of expropriation. The results are broadly consistent with the use of capital controls to prevent capital flight during crisis.…”

Section: Regression Resultsmentioning

confidence: 78%

“…Crises can also reduce government receipts, and foreign investors can be attractive targets for revenue generation (Wellhausen 2015a). On the other hand, Abiad and Mody (2005) find that crises are often connected to liberalization, and Jensen et al (2012) argue that economic crises can make leaders more responsive to reputation concerns, which would make them less likely to expropriate.…”

Section: Theoretical Expectationsmentioning

confidence: 99%

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Political Risk Insurance: A New Firm-level Data Set

Arel‐Bundock

Peinhardt

Pond

2019

Journal of Conflict Resolution

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When do governments impose costs on foreign firms? Many studies of foreign direct investment focus on incentives for government expropriation, but scholars are often forced to rely on indirect measures of expropriation to conduct empirical analyses. This article introduces a data set which includes information on over 5,000 political risk insurance contracts issued by the US Overseas Private Investment Corporation since 1961, and on all the claims filed by investors under these contracts. These detailed insurance data allow us to study the determinants of foreign investors’ losses from a variety of sources, including expropriation, inconvertibility, and violent conflict. To illustrate the benefits of these data for hypothesis testing, we adopt a comprehensive empirical approach and explore both shared and distinct causes across risk categories.

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Section: Regression Resultsmentioning

confidence: 78%

Section: Theoretical Expectationsmentioning

confidence: 99%

Political Risk Insurance: A New Firm-level Data Set

Arel‐Bundock

Peinhardt

Pond

2019

Journal of Conflict Resolution

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“…First, our research complements previous empirical studies showing that political factors matter for expropriation risk, and adds nuance to the discussion. While earlier work has noted the benefits of political constraints for reducing nationalization risk overall (Graham et al, 2015;Jensen et al, 2012Jensen et al, , 2014Li, 2009), we augment prior studies by showing how the risk associated with the particular sector affects the need for political constraints. Second, the findings build on previous research indicating that the threat of expropriation increases under leftist governments, and especially for resource firms (Jensen et al, 2012;Kobrin, 1980).…”

Section: Introductionmentioning

confidence: 84%

“…One argument is that strong economic growth rates and high levels of development run counter to any supposed economic need to appropriate foreign firms. An alternative argument is that host governments are less prone to nationalize during economic crises because they fear the reputation costs and consequences of nationalizing assets (Jensen et al, 2014). We include economic controls because of their potential impact on expropriation one way or the other.…”

Section: Methodsmentioning

confidence: 99%

“…Some empirical studies have noted the benefits of political and legal checks on host governments for lessening the threat of expropriation on foreign direct investment (FDI). Indeed, several works have shown that veto players promote stability and procedural predictability to government policies that reduce opportunities for expropriation of foreign assets (Graham et al, 2015;Jensen et al, 2012Jensen et al, , 2014Li, 2009). 2 Political constraints also afford leverage for individuals and domestic groups who profit from foreign investment to pressure lawmakers to refrain from expropriation policies.…”

Section: Introductionmentioning

confidence: 99%

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The effects of political and legal constraints on expropriation in natural resource and manufacturing sectors

Biglaiser

Lee

Staats

2017

International Area Studies Review

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Using panel data for up to 86 developing countries from 1960–2006, this paper investigates the effects of political and legal constraints on the tendency of host governments to expropriate in the natural resource and manufacturing sectors. Consistent with existing research, we find that host governments are more inclined to expropriate in the natural resource sector than they are in the manufacturing sector and that leftist governments are more apt to expropriate than rightist governments. However, we also find that political and legal constraints on host governments lessen the risk of expropriation, but do so with greater force as to the natural resource sector than for the manufacturing sector, and with larger effect as to leftist governments than rightist governments. The results suggest that leftist governments are especially inclined to expropriate in the resource sector unless constrained by political and legal factors from doing so and, because of lower initial capital requirements and increased mobility of assets, all governments, left and right, have less reason to expropriate in the manufacturing sector and therefore are more likely to resist expropriating even in the absence of political and legal constraints.

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Closing time: Reputational constraints on capital account policy in emerging markets

Liao

McDowell

2021

Rev Int Organ

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Do international reputational concerns constrain governments’ economic policy choices? We assess this question by analyzing emerging market decisions to tighten restrictions on capital outflows. While policymakers should be more likely to tighten restrictions to protect their economies as capital flow volatility (CFV) increases, investors view outflow controls as heterodox policies that violate investment contracts. We argue that the effect of CFV on outflow controls depends on the use of controls in peer markets. When peers are open, governments anticipate that controls will come at a high cost to their market reputations as heterodox measures send a negative signal to investors among a crowd of liberal peers. Conversely, when peers are closed, using controls should do less damage to an economy’s reputation. For 25 emerging markets from 1995–2015, we show that CFV is associated with outflow controls, but only when market peers are already closed, suggesting reputational concerns can limit policy autonomy. Supplementary Information The online version contains supplementary material available at 10.1007/s11558-021-09433-1.

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

Cited by 31 publications

References 73 publications

Political Risk Insurance: A New Firm-level Data Set

Political Risk Insurance: A New Firm-level Data Set

The effects of political and legal constraints on expropriation in natural resource and manufacturing sectors

Closing time: Reputational constraints on capital account policy in emerging markets

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