The Effect of Sanctions on U.S. Foreign Direct Investment

Abstract

For years, the United States has imposed economic sanctions to compel countries to alter their behavior. An important concern is whether government sanctions influence private foreign direct investment (FDI) decisions, the largest source of foreign capital. In the first study to assess empirically the relationship between economic sanctions and FDI, we consider whether U.S. sanctions influence U.S. FDI inflows into targeted countries. Using panel data for 171 countries from 1965 to 2000, we find strong evidence that U.S investors pull out of countries targeted for U.S sanctions prior to their imposition. This disinvestment is not permanent and investment tends to return after the sanctions are imposed. The results provide support for FDI studies that show the effect of risk on investor decision making.

State-owned MNCs and host country expropriation risk: The role of home state soft power and economic gunboat diplomacy

“…The research therefore adds to the growing literature in international business (IB) area on the relationship between ownership structure and firms' internationalization (Fernandez & Nieto, 2006;Filtotchev, Strange, Piesse, & Lien, 2007;Bhaumik, Driffield, & Pal, 2010;Wang, Hong, Kafouros, & Wright, 2012), and on international political factors on FDI flows (e.g. Nigh, 1985;Li & Vashchilko, 2010;Biglaiser & Lektzian, 2011).…”

The effect of foreign direct investment on the use and success of US sanctions

“…The role of costs also figures into FDI and sanctions work (Biglaiser and Lektzian, 2011). The primary connection between FDI and sanctions revolves around the ability of the sending country to increase investment risk and thus raise costs in the targeted country.…”

“…In the case of US multinational corporations (MNCs), the US government has many resources to monitor sanctions infractions and punish violations that increase investor costs (Morgan and Bapat, 2003). The US government also can eliminate incentives that are only available to US MNCs such as access to the Export-Import Bank or the Overseas Private Investment Corporation, which again raises investor costs (Biglaiser and Lektzian, 2011).…”

Sticks and Stones: Sanction Threats, Impositions, and Their Effect on International Trade

“…Since the release of HSE, research has explored the effects of economic sanctions on foreign direct investment (Biglaiser & Lektzian 2011), human rights (Peksen 2009), the level of democracy (Peksen et al 2010), jobs and wages (Hufbauer et al 1997), along with the impact that sanctions have on international trade (Caruso 2003). A related line of inquiry deals with third-country effects or sanctions busting, i.e., the situation in which a sanctioned state reroutes its trade to other trading partners that are not taking part in the sanctioning of the aforementioned state, thus eliminating the effect of the sanction (Early 2009;Yang et al 2009).…”