Costs and consequences of the expropriation of FDI by host governments
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There are no laws preventing a host government from seizing the
capital of a foreign direct investment in its borders and then denying any
compensation for the foreign investor. Why do we not see many more
expropriations of investor capital by host governments? Compiling a
database of expropriations within the minerals sectors of developing
countries, I show that there is a cost for expropriation by a host government in
the form of lower growth in the sectors of countries that expropriated in the
past. It is possible to lose a bad reputation by a host government's actions
after expropriation.