Arbeitspapier

Mode of international investment and endogenous risk of expropriation

In this paper, we develop a politico-economic model to analyze the relationship between the mode of international investment and institutional quality in a non-democratic capital importing country. Foreign investors from a capital-rich North can either purchase productive assets in a capital-poor South and transfer their capital within integrated multinational firms or they can form joint ventures with local asset owners. The South is ruled by an autocratic elite that may use its political power to expropriate productive assets. In a joint venture, the domestic asset owner bears the risk of expropriation, whereas in an integrated firm, this risk affects the foreign investor. This effect lowers the incentives for specific investments in an integrated firm and distorts the decision between joint ventures and integrated production. By setting the institutional framework in the host country, the elite in uences the risk of expropriation. We determine the equilibrium risk of expropriation in this framework and the resulting pattern of international production. We also analyze as to how globalization, which is reflected in a decline in investment costs, in influences institutional quality.

Language
Englisch

Bibliographic citation
Series: MAGKS Joint Discussion Paper Series in Economics ; No. 35-2010

Classification
Wirtschaft
International Investment; Long-term Capital Movements
Firm Organization and Market Structure
Other Economic Systems: Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies
Subject
foreign direct investment
joint venture
property rights
expropriation
Direktinvestition
Joint Venture
Kapitalimport
Eigentumsrecht
Politisches System
Institutionelle Infrastruktur
Kleines-offenes-Land
Nord-Süd-Beziehungen
Theorie

Event
Geistige Schöpfung
(who)
Dadasov, Ramin
Lorz, Oliver
Event
Veröffentlichung
(who)
Philipps-University Marburg, Faculty of Business Administration and Economics
(where)
Marburg
(when)
2010

Handle
Last update
10.03.2025, 11:43 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Dadasov, Ramin
  • Lorz, Oliver
  • Philipps-University Marburg, Faculty of Business Administration and Economics

Time of origin

  • 2010

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