DP2695 Repeated Expropriation Contests and Foreign Direct Investment

Author(s): Kai A. Konrad
Publication Date: February 2001
Keyword(s): Confiscatory Taxation, Conflict, Expropriation, Foreign Direct Investment, Fractionalization, Nationalization
JEL(s): F21, F23, G15, H87
Programme Areas: Public Economics, Transition Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2695

This Paper considers the incentives for foreign direct investment in transformation countries if actual expropriation is the possible result of a conflict between multinational firms and local or national governments. The Paper compares threats of complete expropriation and of repeated period-revenue confiscation. The Paper also shows that the timing of efforts in the contests is essential for the size of underinvestment. Short term commitment as regards timing can lead to first-best investment levels.