Political uncertainty and revenue sharing in international contracting

Yi Zhang, Hein Roelfsema and Chun Liu

European Journal of Political Economy, 2024, vol. 85, issue C

Abstract: This study investigates a critical source of political uncertainty for foreign investors in a centralised political system: leadership turnover within local governments. Our stylised model suggests that risk-averse foreign investors, faced with this uncertainty, tend to offer a larger revenue share to their local partners in international joint ventures (IJVs). This incentivises local officials to provide the necessary authorisations and public inputs for IJVs. Using a unique Chinese dataset that links city-level leadership changes with firm-level incentive structures, our empirical analysis provides robust evidence supporting this framework.

Keywords: Political uncertainty; International joint ventures; Revenue sharing; China (search for similar items in EconPapers)
JEL-codes: D23 D80 F21 F23 G32 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:poleco:v:85:y:2024:i:c:s0176268024000892

DOI: 10.1016/j.ejpoleco.2024.102587

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