Legitimacy, Interest Group Pressures and Institutional Change: The Case of Foreign Investors and Host Country Governments

In order to reflect more fully the conflict between the potential for mutual gain and the prospect of divergent interests that characterizes the relationship between foreign investors and host country governments, we add institutional context to the traditional bargaining power perspective. We propose that change in the regulative institutions embodying an initial bargain is more likely to occur when the institutional design process, exogenous changes in circumstance or investor business practices aggravate broader concerns about the legitimacy of the distributional rights enshrined in the institution. Institutional inertia, countrylevel institutional structures and organizational characteristics may all mute pressures for institutional change.