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

American Political Science Review (Forthcoming)

48 Pages Posted: 27 Feb 2015 Last revised: 5 Jun 2015

See all articles by Leslie Johns

Leslie Johns

University of California, Los Angeles (UCLA) - Department of Political Science

Rachel Wellhausen

University of Texas at Austin

Date Written: May 25, 2015

Abstract

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.

Keywords: foreign direct investment, property rights, supply chains, outsourcing, multinational corporations, deverticalization, expropriation

JEL Classification: D21, D23, F23

Suggested Citation

Johns, Leslie and Wellhausen, Rachel, Under One Roof: Supply Chains and the Protection of Foreign Investment (May 25, 2015). American Political Science Review (Forthcoming), Available at SSRN: https://ssrn.com/abstract=2570680 or http://dx.doi.org/10.2139/ssrn.2570680

Leslie Johns (Contact Author)

University of California, Los Angeles (UCLA) - Department of Political Science ( email )

405 Hilgard Ave.
Los Angeles, CA 90095-1472
United States

Rachel Wellhausen

University of Texas at Austin ( email )

158 W 21st St, Stop A1800
Austin, TX 78712
United States

HOME PAGE: http://www.rwellhausen.com

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