.FOREIGN DIRECT INVESTMENT AND THE RISK OF EXPROPRIATION

When an investor, for example a transnational corporation invests abroad it runs the risk that its investment will be expropriated. The host country although it might have a short-term incentive to expropriate has a long-term incentive to foster good relations to attract more investment in the future. This conflict between short-term and long-term incentives determines the type of contracts agreed by transnational corporations and host countries. In a model of the manufacturing industry with a continuous flow of investment it is shown that investment is initially underprovided, increases over time, tending, for certain parameter values, to the efficient level.


Issue Date:
Jan 19 1990
Publication Type:
Working or Discussion Paper
Record Identifier:
http://ageconsearch.umn.edu/record/268376
Language:
English
Total Pages:
37




 Record created 2018-02-15, last modified 2018-02-15

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