Investment and Expropriation under Oligarchy and Democracy in a Heckscher-Ohlin World

35 Pages Posted: 20 Jan 2008

See all articles by Facundo Albornoz

Facundo Albornoz

University of Birmingham

Sebastian Galiani

University of Maryland - Department of Economics

Daniel Heymann

Universidad de Buenos Aires

Multiple version iconThere are 2 versions of this paper

Date Written: January 18, 2008

Abstract

We study the incentives to expropriate foreign capital under democracy and oligarchy. We model a two-sector small open economy where foreign investment triggers Stolper-Samuelson effects through reducing exporting costs. We show how incentives to expropriate depend on the distributional effects of the investment and on how these affect the interests of the group in power. How investment affects the incomes of the different groups in society depends on the sectors where these investments are undertaken and the structural features of the economy such as factor intensity. We characterize expropriation equilibria and show that if investment is undertaken in the sector that uses labor less intensively, democracies are generally more prone to expropriate. This result provides one possible rationalization for the wave of expropriations in Latin America under governments with a broad popular base during the 20th Century.

Keywords: expropriation, political regimes, democracy, oligarchy, foreign investments, Stolper-Samuelson

JEL Classification: D72, D74, H71, 015, P16, P14

Suggested Citation

Albornoz, Facundo and Galiani, Sebastian and Heymann, Daniel, Investment and Expropriation under Oligarchy and Democracy in a Heckscher-Ohlin World (January 18, 2008). Available at SSRN: https://ssrn.com/abstract=1085360 or http://dx.doi.org/10.2139/ssrn.1085360

Facundo Albornoz (Contact Author)

University of Birmingham ( email )

Economics Department
Birmingham, B15 2TT
United Kingdom

Sebastian Galiani

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

Daniel Heymann

Universidad de Buenos Aires ( email )

Buenos Aires
Argentina

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
187
Abstract Views
1,125
rank
172,682
PlumX Metrics