Political Risk and Realpolitik: The Politics of Compensation for Expropriation

Johnston, Noel P.

doi:10.2139/ssrn.2134577

Cited by 4 publications

(2 citation statements)

References 56 publications

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“…These treaties usually allow investors to challenge their host government for possible treaty violations using international arbitration (Allee and Peinhardt 2010; Sornarajah 2004). Yet it is often difficult for foreign investors to secure compensation for contract breach, whether in a domestic or an international legal body (Frye 2004; Johnston 2013; Lowenfeld 2008). Thus, when a firm invests in a country without strong domestic judicial institutions, it effectively engages in commerce under anarchy.…”

Section: Informal Protection Of Foreign Direct Investmentmentioning

confidence: 99%

Under One Roof: Supply Chains and the Protection of Foreign Investment

2016

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We argue that economic links, such as supply chains, can create a common roof that protects foreign investors in host countries that lack strong institutions to protect property rights. Supply chains link the activities of firms: when a host government breaks a contract with one firm, other firms in the supply chain are harmed. These partner firms therefore have incentive to protect one another’s property rights. This leads to the key implication of our argument: host governments are less likely to violate the property rights of firms that are more tightly linked with other firms in the host economy. We test our argument with cross-national data on investment arbitration, a survey of US multinational subsidiaries in Russia, and case studies from Azerbaijan. Our findings imply that one benefit of outsourcing in developing and transition economies is the creation of a network of partner firms that protect each other’s property rights.

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Section: Informal Protection Of Foreign Direct Investmentmentioning

confidence: 99%

Under One Roof: Supply Chains and the Protection of Foreign Investment

2016

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“…An investor's level of information, ease of exit, and ability to resist jointly determine her vulnerability to adverse political events. To avoid or limit losses, an investor must either: a) prevent an adverse political event from occurring; b) shift assets out of the host country before losses are incurred or c) obtain compensation for those losses after they occur (Johnston 2015). In the following sections, we outline how level of information, ease of exit, and ability to resist allow investors to achieve these favorable outcomes.…”

Section: Dynamic Intuitions From the Static Modelmentioning

confidence: 99%

A Unified Model of Political Risk

Graham¹,

Johnston²,

Kingsley³

2016

Advances in Strategic Management

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Political risk is a complex phenomenon. This complexity has incentivized scholars to take a piecemeal approach to understanding it. Nearly all scholarship has targeted a single type of political risk (expropriation) and, within this risk, a single type of firm (MNCs) and a single type of strategic mechanism through which that risk may be mitigated (entry mode). Yet "political risk" is actually a collection of multiple distinct risks that affect the full spectrum of foreign firms, and these firms vary widely in their capabilities for resisting and evading these risks. Design: We offer a unified theoretical model that can simultaneously analyze: the three main types of political risk (war, expropriation, and transfer restrictions); the universe of private foreign investors (direct investors, portfolio equity investors, portfolio debt investors, and commercial banks); heterogeneity in government constraints; and the three most relevant strategic capabilities (information, exit, and resistance). Findings: We leverage the variance among foreign investors to identify effective firm strategies to manage political risk. By employing a simultaneous and unified model of political risk, we also find counterintuitive insights on the way governments trade off between risks and how investors use other investors as risk shields.

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The effects of the IMF on expropriation of foreign firms

2015

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This paper seeks to explain the determinants of foreign expropriation in the developing world. We argue that the International Monetary Fund (IMF) helps to reduce the likelihood of nationalization because of the direct leverage the Fund holds over borrowers, especially as expropriation is a blatant violation of international property rights. Using expropriation data from 1961 to 2006, and several different measures for the Fund, we find that countries under IMF agreements are less likely to nationalize foreign firms. We also show that the Fund's influence is greatest when the IMF loan represents a larger share of the borrower country's gross domestic product (GDP) as well as in countries with weaker political institutions. The takeaway is that IMF continues to influence policy choices in the developing world.

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Political Risk and Realpolitik: The Politics of Compensation for Expropriation

Cited by 4 publications

References 56 publications

Under One Roof: Supply Chains and the Protection of Foreign Investment

Under One Roof: Supply Chains and the Protection of Foreign Investment

A Unified Model of Political Risk

The effects of the IMF on expropriation of foreign firms

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