Sovereign Theft: Theory and Evidence about Sovereign Default and Expropriation

69 Pages Posted: 23 Apr 2009

See all articles by Michael Tomz

Michael Tomz

Stanford University

Mark L. J. Wright

Federal Reserve Banks - Federal Reserve Bank of Minneapolis

Date Written: June 9, 2008

Abstract

This paper examines two major risks to foreign investors: default on sovereign debt and expropriation of foreign direct investment, which we refer to collectively as "sovereign theft." Using a series of formal models, we analyze how the incentives to engage in sovereign theft vary with the state of the economy, the risk aversion of political leaders, and the nature of punishments for default and expropriation. We then document patterns of sovereign theft and foreign investment across much of the twentieth century. Our research, based on a new data set, reveals a striking asynchronicity: defaults and expropriations have occurred in alternating -- rather than coincident -- waves. Our findings shed new light on cooperation and conflict in the international economy.

Keywords: sovereign debt, foreign direct investment, sovereign default, expropriation, nationalization

JEL Classification: F21, F23, F34

Suggested Citation

Tomz, Michael and Wright, Mark L.J., Sovereign Theft: Theory and Evidence about Sovereign Default and Expropriation (June 9, 2008). Available at SSRN: https://ssrn.com/abstract=1392540 or http://dx.doi.org/10.2139/ssrn.1392540

Michael Tomz

Stanford University ( email )

Stanford, CA 94305
United States

Mark L.J. Wright (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Minneapolis ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States

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