Costs and consequences of the expropriation of FDI by host governments

There are no laws preventing a host government from seizing the capital of a foreign direct investment in its borders and then denying any compensation for the foreign investor. Why then do we not see many more expropriations of investor capital by host governments? Compiling a database of expropriations within the minerals sectors of developing countries, we show that there is punishment for expropriation by a host government, but this punishment is not external. Rather the punishment comes in the form of lower reinvestment and growth in the sectors of countries that expropriated in the past. It is partially possible to lose a bad reputation by a host government's actions after expropriation. Contact address: Ivan Allen College, School of Economics, Georgia Institute of Technology, Atlanta, GA 30332. Email: [email protected]. Phone: 404-385-1363. Fax: 404-8941890