Price or politics? An investigation of the causes of expropriation
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Expropriations of foreign direct investment in developing countries are typically
blamed on political and economic crises in those countries. Developing a new database
of expropriations in the minerals sectors of developing country exporters, I show
that expropriations were correlated with mineral price booms and that democratic
governments were more likely to expropriate. No link is found between expropriations
and political or economic crises, except at independence. A better explanation of
expropriation would be opportunistic behaviour by host governments when profits of
investments are high. In two developed countries, Australia and Canada, expropriations
are also found to occur during price booms.