Attracting Fdi in a Politically Risky World

Eckhard Janeba

International Economic Review, 2002, vol. 43, issue 4, 1127-1155

Abstract: Conventional wisdom holds that lack of government commitment deters foreign investment in developing countries. Yet this explanation is not convincing because some econometric studies have found little support for the role of political risk and host governments can offer upfront subsidies that compensate foreign investors for their sunk cost. This paper shows that a second commitment problem upsets the argument. A multinational firm cannot credibly commit to invest in only one country. Since countries differ in production costs and government credibility, this article explains the pattern of investment in a politically risky world. Copyright 2002 by the Economics Department of the University of Pennsylvania and Osaka University Institute of Social and Economic Research Association

Date: 2002
References: Add references at CitEc
Citations: View citations in EconPapers (41)

Downloads: (external link)
http://openurl.ingenta.com/content?genre=article&i ... volume=43&spage=1127 (application/pdf)
Free access to full text is restricted to Ingenta subscribers.

Related works:
Working Paper: Attracting FDI in a Politically Risky World (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ier:iecrev:v:43:y:2002:i:4:p:1127-1155

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0020-6598

Access Statistics for this article

International Economic Review is currently edited by Harold L. Cole

More articles in International Economic Review from Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association 160 McNeil Building, 3718 Locust Walk, Philadelphia, PA 19104-6297. Contact information at EDIRC.
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and ().