Foreign Direct Investment and the Risk of Expropriation

Jonathan Thomas () and Tim Worrall ()

Review of Economic Studies, 1994, vol. 61, issue 1, pages 81-108

Abstract: When a transnational corporation invests abroad, it runs the risk that its investment will be expropriated. Any agreements or contracts undertaken by the transnational company and the host country must be designed to be self-enforcing. This paper extends previous work on investment when contracts are incomplete to a dynamic context. It is shown that investment is initially underprovided but increases over time and for certain parameter values tends to the efficient level. The expected future discounted returns to the transnational company decline over time, extending R. Vernon's (1971) observation of the obsolescing bargain. Copyright 1994 by The Review of Economic Studies Limited.

Date: 1994
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Related works:
Working Paper: FOREIGN DIRECT INVESTMENT AND THE RISK OF EXPROPRIATION (1990)
Working Paper: Foreign Direcyt Investment and the Risk of Expropriation (1991)
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