Democratic Institutions and Expropriation Risk for Multinational Investors

43 Pages Posted: 14 Dec 2005

See all articles by Nathan M. Jensen

Nathan M. Jensen

Washington University in St. Louis - Department of Political Science

Date Written: November 1, 2006

Abstract

There is a renewed interest in how political risk affects multinational corporations operating in emerging markets. Much of this research has focused on the relationship between democratic institutions and flows of foreign direct investment (FDI), offering inconclusive evidence on the relationship between democracy and political risk. Yet the existing studies suffer from data problems that only allow for indirect evidence of the relationship between political institutions and political risk. In this paper I utilize price data from political risk insurance agencies to directly test how domestic political institutions affect the premiums multinationals pay for coverage against government expropriations and contract disputes. Utilizing both political risk insurance data and qualitative evidence from investors, insurers, and location consultants I find that democratic regimes reduce risks for multinational investors.

Keywords: political risk, FDI, multinational, expropriation

JEL Classification: C82, D81, F21, G22, G28, K20

Suggested Citation

Jensen, Nathan M., Democratic Institutions and Expropriation Risk for Multinational Investors (November 1, 2006). Available at SSRN: https://ssrn.com/abstract=869460 or http://dx.doi.org/10.2139/ssrn.869460

Nathan M. Jensen (Contact Author)

Washington University in St. Louis - Department of Political Science ( email )

219 Eliot Hall
St. Louis, MO 63130
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
711
Abstract Views
3,541
rank
35,004
PlumX Metrics