Since 1990, governments around the developing world have broken contracts made with multinational corporations (MNCs), but the incidence of breach varies across countries and over time. I argue that shared firm nationality is a key determinant of contract sanctity. MNCs are likely to divert investments or exit in response to breach with a firm of the same nationality but unlikely to react in ways costly to the host government otherwise. At the level of the economy as a whole, host governments gain permissive space to trade-off among national groups of investors when a greater diversity of foreign direct investment nationalities is present. I use national-, firm-, and dyadic-level data from 1990 to 2008 to demonstrate nationality-tied firm responses to breach. Counterintuitively, deeper integration with more nationally diverse MNCs enables more breach, as governments gain space to prioritize other goals over the property and preferences of foreign capital.
A Business Guide to Political Risk for International Decisions: Part II. 2012. International Country Risk Guide. Political Risk Services.
2.
AlbertusM.MenaldoV.. 2012. “If You’re against Them You’re with Us: The Effect of Expropriation on Autocratic Survival.”Comparative Political Studies 45 (8), 973-1003.
3.
AlleeT.PeinhardtC.. 2010. “Delegating Differences: Bilateral Investment Treaties and Bargaining Over Dispute Resolution Provisions.”International Studies Quarterly54 (1): 1–26.
4.
AlleeT.PeinhardtC.. 2011. “Contingent Credibility: The Impact of Investment Treaty Violations on Foreign Direct Investment.”International Organization65 (2): 401–32.
5.
BarbieriK.KeshkO.PollinsB.. 2009. “Trading Data: Evaluating Our Assumptions and Coding Rules.”Conflict Management and Peace Science26 (5): 471–91.
6.
BiglaiserG.DeRouenK.. 2007. “Following the Flag: Troop Deployment and US Foreign Direct Investment.”International Studies Quarterly51 (4): 835–54.
7.
BiglaiserG.LektzianD.. 2011. “The Effect of Sanctions on US Foreign Direct Investment.”International Organization65 (2): 531–51.
8.
BlakeD.2010. “Thinking Ahead: Time Horizons and the Legalization of International Investment Agreements.” Doctoral dissertation, The Ohio State University, Columbus, OH.
9.
BuetheT.MilnerH.. 2008. “The Politics of Foreign Direct Investment into Developing Countries: Increasing FDI through International Trade Agreements?”American Journal of Political Science52 (4): 741–62.
10.
BuetheT.MilnerH.. 2009. “Bilateral Investment Treaties and Foreign Direct Investment: A Political Analysis.” In The Effect of Treaties on Foreign Direct Investment: Bilateral Investment Treaties, Double Taxation Treaties, and Investment Flows, edited by SauvantK.SachsL., 171-225. Oxford, UK: Oxford University Press.
11.
CaiH.TreismanD.. 2005. “Does Competition for Capital Discipline Governments? Decentralization, Globalization, and Public Policy.”The American Economic Review95 (3): 817–30.
12.
ChinnM.ItoH.. 2006. “What Matters for Financial Development? Capital Controls, Institutions, and Interactions.”Journal of Development Economics81 (1): 163–92.
13.
DesbordesR.2010. “Global and Diplomatic Political Risks and Foreign Direct Investment.”Economics & Politics22 (1): 92–125.
14.
ElkinsZ.GuzmanA.SimmonsB.. 2006. “Competing for Capital: The Diffusion of Bilateral Investment Treaties, 1960-2000.”International Organization60:811–46.
15.
FailsMatthew D.2012. “Inequality, Institutions, and the Risks to Foreign Investment.”International Studies Quarterly56 (3): 516–29.
16.
FriedenJ.1994. “International Investment and Colonial Control: A New Interpretation.”International Organization48 (04): 559–93.
17.
FuentesM.SaraviaD.. 2010. “Sovereign Defaulters: Do International Capital Markets Punish Them?”Journal of Development Economics91 (2): 336–47.
18.
GhosnF.PalmerG.BremerS.. 2004. “The Mid3 Data Set, 1993-2001: Procedures, Coding Rules, and Description.”Conflict Management and Peace Science21 (2): 133–54.
19.
GoldsteinJ.RiversD.TomzM.. 2007. “Do We Really Know that the WTO Increases Trade? Comment.”American Economic Review97 (5): 2005-2018.
20.
GurievS.KolotilinA.SoninK.. 2009. “Determinants of Nationalization in the Oil Sector: A Theory and Evidence from Panel Data.” Working Paper No 115 CEFIR/NES Working Paper series, Washington, DC.
21.
HajzlerC. 2012. “Expropriation of Foreign Direct Investments: Sectoral Patterns from 1993 to 2006.”Review of World Economics 148 (1):119-149.
22.
HeniszW.2002. Politics and International Investment: Measuring Risks and Protecting Profits. Cheltenham, UK: E. Elgar.
23.
HolburnG.ZelnerB.. 2010. “Political Capabilities, Policy Risk, and International Investment Strategy: Evidence from the Global Electric Power Generation Industry.”Strategic Management Journal31:1290–315.
24.
HumphreysM.BatesR.. 2005. “Political Institutions and Economic Policies: Lessons from Africa.”British Journal of Political Science35 (03): 403–28.
25.
HymerS.1976. The International Operations of National Firms: A Study of Direct Foreign Investment. Cambridge, MA: MIT Press.
26.
JandhyalaS.HeniszW.MansfieldE.. 2011. “Three Waves of BITs: The Global Diffusion of Foreign Investment Policy.”Journal of Conflict Resolution55 (6): 1047–73.
27.
JensenN.2006. Nation-States and the Multinational Corporation. Princeton, NJ: Princeton University Press.
28.
JensenN.2008. “Political Risk, Democratic Institutions, and Foreign Direct Investment.”The Journal of Politics70 (4): 1040–52.
29.
JensenN.JohnstonN.. 2011. “Political Risk, Reputation, and the Resource Curse.”Comparative Political Studies44 (6): 662–88.
30.
JensenN.YoungD.. 2008. “A Violent Future? Political Risk Insurance Markets and Violence Forecasts.”Journal of Conflict Resolution52 (4): 527.
31.
KernerA.. 2009. “Why Should I Believe You? The Costs and Consequences of Bilateral Investment Treaties.”International Studies Quarterly53 (1): 73-102.
32.
KnutsenC.RyghA.HveemH.. 2011. “Does State Ownership Matter? Institutions’ Effect on Foreign Direct Investment Revisited.”Business and Politics13 (1): 1–33.
33.
KobrinS.1982. Managing Political Risk Assessment: Strategic Response to Environmental Change. Berkeley: University of California Press.
34.
KobrinS.2001. “Sovereignty@Bay: Globalization, Multinational Enterprise, and the International Political System.” In The Oxford Handbook of International Business, edited by RugmanA., 181–205. Oxford, UK: Oxford University Press.
35.
Krasner, S. D. 1999. “Globalization and Sovereignty.” In States and Sovereignty in the Global Economy, edited by D. Smith, D. Solinger, and S. Topik, 34-52. London:Routledge.
36.
LiQ.2009. “Democracy, Autocracy, and Expropriation of Foreign Direct Investment.”Comparative Political Studies42 (8): 1098–208.
37.
LiQ.ResnickA.. 2003. “Reversal of Fortunes: Democratic Institutions and Foreign Direct Investment Inflows to Developing Countries.”International Organization57 (1): 175–211.
38.
LiQ.VashchilkoA.. 2010. “Dyadic Military Conflict, Security Alliances, and Bilateral Fdi Flows.”Journal of International Business Studies41 (5): 765–82.
39.
MayerT.ZignagoS.. 2011. “Notes on CEPII's Distances Measures: The GeoDist Database.”CEPII Working Paper No. 2011-25.
40.
MinorM.1994. “The Demise of Expropriation as an Instrument of LDC Policy, 1980-1992.”Journal of International Business Studies25(1): 177–88.
41.
MosleyL.2005. “Room to Move: International Financial Markets and National Welfare States.”International Organization54 (4): 737–73.
42.
NorthD.1990. Institutions, Institutional Change, and Economic Performance. Cambridge: Cambridge University Press.
43.
RobertsonG.TeitelbaumE.. 2011. “Foreign Direct Investment, Regime Type, and Labor Protest in Developing Countries.”American Journal of Political Science55 (3): 665–77.
44.
RodrikD.1997. Has Globalization Gone Too Far?Washington, DC: Peterson Institute of International Economics.
45.
RodrikD.2011. The Globalization Paradox: Democracy and the Future of the World Economy. Washington, DC: W. W. Norton.
46.
SauvantK.SachsL.. 2009. The Effect of Treaties on Foreign Direct Investment: Bilateral Investment Treaties, Double Taxation Treaties, and Investment Flows. Oxford, UK: Oxford University Press.
47.
ShleiferA.VishnyR.. 2002. The Grabbing Hand: Government Pathologies and Their Cures. Cambridge, MA: Harvard University Press.
StrangeS.1996. The Retreat of the State: The Diffusion of Power in the World Economy. Cambridge: Cambridge University Press.
50.
VernonR.1971. Sovereignty at Bay. New York: Basic Books.
51.
WilliamsonO.1979. “Transaction-Cost Economics: The Governance of Contractual Relations.”Journal of Law and Economics22 (2): 233-261.
52.
ZaheerS.1995. “Overcoming the Liability of Foreignness.”Academy of Management Journal38 (2): 341–63.
53.
ZegerS.LiangK.. 1986. “Longitudinal Data for Discrete and Continuous Outcomes.”Biometrics42 (1): 121–30.
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
