Does foreign aid mitigate the adverse effect of expropriation risk on foreign direct investment?

Abstract

JEL classifications:We construct a model of FDI, risk and aid, where a country loses access to FDI and aid if the country expropriates FDI. We show that: (i) the threat of expropriation leads to under-investment; (ii) the optimal level of FDI decreases as the risk of expropriation rises; and (iii) aid mitigates the adverse effect of expropriation risk on FDI. The empirical analysis employs data for 35 low-income countries and 28 countries in Sub-Saharan Africa, over the period 1983-2004. We find that risk has a negative effect on FDI and that aid mitigates but cannot eliminate the adverse effect of risk.

The interactive impact of press freedom and media reach on corruption

“…Following Cooray et al (2014), Asiedu et al (2009) among others we calculate the means for reach index for each country and then marginal impacts are estimated at the 10th, 25th, 50th, 75th, 90th and 95th percentiles of the mean as well as the mean reach index calculated based on sample means. The country names reported in the table correspond to the particular percentile of reach index.…”

“…The first principal component, PC 1 explains the largest possible variation in the dataset subject to the constraint, We address our endogeneity concerns by employing Dynamic Panel Estimators. Dynamic Panel Estimators allow us to address the endogeneity issues by not having to find strictly exogenous instruments and, thus, have become popular for recent empirical panel studies [see, for instance, Dutta et al (2013), Asiedu and Lien (2011), Asiedu et al (2009), Djankov et al (2006, Acemoglu et al (2008) to mention a few]. A linear dynamic panel-data (DPD) is estimated to capture the effect of lagged corruption on current corruption.…”

The effects of the IMF on expropriation of foreign firms

“…14 See Graham et al (2014) and Li (2009). constraint, pressuring borrower countries to refrain from expropriation. Complementing work by Asiedu et al (2009) who contend that foreign aid can act as a carrot to encourage country compliance with foreign investment contracts and reduce expropriation risk, we claim that the Fund's capacity to impose the stick of costly sanctions on borrowers constrains host countries that otherwise have few limits on their policy actions. This places the Fund in a stronger position to inhibit direct violations of international property rights.…”

Overcoming distrust: How state-owned enterprises adapt their foreign entries to institutional pressures abroad

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