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Mode Of International Investment And Endogenous Risk Of Expropriation

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Executive Summary

In this paper, the authors develop a politico-economic model to analyze the relationship between the mode of international investment and institutional quality in a non-democratic capital importing country. Foreign investors from a capital-rich North can either purchase productive assets in a capital-poor South or transfer their capital within integrated multinational firms or they can form joint ventures with local asset owners. The South is ruled by an autocratic elite that may use its political power to expropriate productive assets. In a joint venture, the domestic asset owner bears the risk of expropriation, whereas in an integrated firm, this risk affects the foreign investor.

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